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.

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What happened

AIM-listed Trufin operates three businesses: Oxygen Finance, Playstack, and Satago. Oxygen is an early payments platform that gets businesses paid faster. For example, its FreePay service enables organisations like councils to pay their suppliers early. Meanwhile, Playstack is an indie mobile games publisher.

Finally, Satago is an invoice finance platform. It’s here where the issue lies, with Trufin announcing today that Lloyds Banking Group had given notice to terminate its five-year commercial agreement with Satago.

This contract, which only commenced in July 2022, involved Lloyds’ licencing Satago’s software platform to support invoice factoring solutions for its customers. Lloyds had also made a £5m equity investment in the start-up.

Trufin said: “The board…believes that this decision is not a reflection of the quality or robustness of the Satago platform. It continues to believe in Satago’s ability to generate significant value through its Lending as a Service Embedded Finance strategy, underscored by its ongoing successful partnerships with Sage and the Bank of Ireland.“

Still on track

The company was also quick to point out that its Playstack business was trading ahead of expectations. Consequently, the company as a whole “remains on track to achieve EBITDA profitability in 2024. The Group also remains fully funded to profitability“.

In 2023, the Satago segment grew revenue by more than 71% year on year to £3.8m. For context, full-year group revenue was £18.1m, up 30% from 2022, with Playstack generating £8m of that. So this contract loss isn’t necessarily a total disaster for the firm’s overall growth.

At the same time though, the loss of a blue-chip contract like this isn’t great news for Satago’s near-term revenue growth. And it raises a few doubts for investors, given the abrupt nature of the cancellation.

Last year, Trufin recorded an adjusted pre-tax loss of £6.1m, an improvement on 2022’s loss of £8.2m. The main risk with the stock remains the firm’s unprofitability, in my view.

My move

What to make of this then? Well, I find its Playstack operation interesting. It released its fastest-selling game — Balatro, a poker-inspired game — in February and sold more than 1m units in the first month. The platform expects to release a further five games in 2024 and is trading ahead of expectations.

Plus, management is bullish on Oxygen, the early payments business. In March, it said 87% of the next four year’s revenue was already contracted, with “an exciting pipeline of opportunities for further growth“.

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.

Overall though, I think this one’s too risky for me. The stock is now trading for 50p, but I note that broker Panmure Liberum has already cut its price target to 31p from 101p.

For my money, there are more attractive penny stocks to buy today.

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