TruFin (LSE: TRU) was a 45p penny stock just a year ago. Today (14 August), it rose 16% to reach 115p — a 156% one-year return. I considered this one for my ISA in July 2024 but didn’t invest. I dare say whatever I bought instead has probably limped along in comparison.
The five-year return is now 382%!
Here, I’ll take a look at why investors have suddenly turned bullish, before deciding whether I should invest now.
A three-pronged company
TruFin, which went public in 2018, is an AIM-listed holding company with a £119m market cap.
It owns three niche, tech-focused businesses. Playstack is a fast-growing indie computer games publisher, while Oxygen Finance offers early payment solutions for organisations. Finally, Satago provides invoice finance, primarily for small and medium-sized enterprises.
Very strong update
Back in July 2024, the stock caught my eye because it fell 35% in a single day after Lloyds terminated a five-year commercial agreement with Satago. Not great news.
However, the other two businesses were still growing strongly, especially Playstack. The indie game publisher was enjoying a lot of success with Balatro, a poker-inspired game.
I wrote: “After today’s fall, we’re looking at a price-to-sales (P/S) multiple of around three. That’s not too demanding and could prove to be a bargain if top-line growth continues and the firm starts posting profits.”
Well, that’s what has happened here, as TruFin achieved its first full year of profitability in 2024.
Plus, a trading update today announced that revenue for the six months to the end of June jumped by more than 40%, to roughly £35.5m. This was primarily driven by continued momentum within Playstack.
Meanwhile, adjusted EBITDA is expected to be more than £6.7m, representing year-on-year growth of more than 125%. And it sees pre-tax profit surging to £4.7m, up from just £0.6m the year before.
The second half has started strongly too, boosted by the full launch of game Abiotic Factor. Management said Playstack’s hit ratio — measured by the percentage of games generating a positive return on external development costs — remains exceptional.
As a result, TruFin expects full-year results to “materially exceed market expectations”. So, this is a firm that’s growing strongly and moving into profitability. The interim earnings are due next month.
Valuation
While TruFin started out more like a fintech lender, Playstack is now driving the bulk of growth (and more than 80% of revenue).
That’s not a bad thing, as over 98% of group revenue last year came from recurring sources like game royalties. And over 80% from abroad.
Before today’s update, the stock was trading at 26 times next year’s forecast earnings. That’s not particularly pricey, especially when forecasts will now be revised upwards.
Decision
My fear here is that games publishing is inherently volatile. A couple of great hits can do wonders, as we see here, but that can work both ways if it acquires a string of flops.
If Playstack stalls, the other two businesses (Oxygen and Satago) aren’t big enough to offset that right now.
Also, the game publishing market is crowded, with low barriers to entry. Trends change fast and so can investor sentiment.
I’m going to pass for now. But for those wanting to invest in a fast-growing indie games publisher, the stock may be worth considering.
