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Cornerstone FS (AIM:CSFS) said it is anticipating revenue growth of approximately 38% (to £2.3m) for full year 2021. The announcement from the cloud-based provider of international payment and currency services for SMEs had investors buying in, with shares up 17% in the morning.

The company said this reflects strong trading momentum that has continued into the new year. For the first quarter of 2022, Cornerstone achieved underlying revenue growth across the business and received the first contribution to revenue from Capital Currencies, which the group acquired during the period.

Great revenue numbers out today

Total unaudited revenue for Q1 2022 was approximately £946k; this is Cornerstone’s highest ever unaudited quarterly revenue. Excluding the contribution from acquisitions, Cornerstone’s three month Q1 2022 unaudited revenue of approximately £888k has surpassed the six month revenue reported by the group for H1 2021 of £837k. But this story is more than just about the revenue, as we note below.

The Armchair Trader noted on 15 March that non-executive director Gareth Edwards had bought 24,033 ordinary shares at a price of 16.9p per share. As a result, he now holds 389,721 shares, representing about 1.65% of the current issued share capital of the company. At the time Cornerstone shares were trading down 36.4% YTD.

Revenue generated by clients that Cornerstone FS serves directly continued to increase significantly during Q1 2022 to approximately 77% compared with 28% for the first half of the previous year. A key contributor to this was the Asia team that was brought on board in the second half of 2021

As announced in its trading update on 14 January 2022 this change to majority direct revenue has had a positive impact on Cornerstone’s gross margin, increasing to approximately 51.5% for the full year 2021 (unaudited) from 29.8% for the full year 2020.

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Trend breaker, but can Cornerstone FS news reverse losses for investors?

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The move in the share price today is a definite trend-breaker for the AIM-listed stock. Shares have been trending steadily downwards over the past 12 months apart from a short-lived reversal in January when Cornerstone’s share price moved from 29p to 40p. Volumes in the stock have picked up substantially then however.

Overall Cornerstone numbers are still a sea of red which will only suit the most adventurous investor.  Although total revenues are growing nicely, the company still reports an operating loss fairly consistently. Sales CAGR is up at 29.6%, but we’re still seeing red flags like -4.06% historical sales growth and a decline in operating cash flow. Normalised EPS and net income are down against 2019-20 numbers.

Note that Cornerstone FS announced January that it proposed the acquisition of Capital Currencies for £3m, a deal to be financed through a mixture of cash, new ordinary shares and a convertible loan note. Capital Currencies was considered to be a strong fit for Cornerstone, as it has a strong book of UK corporate clients. Over 90% of its revenue comes from clients it services directly.

We remain a little mystified by Cornerstone: the share price decline is less surprising, given the numbers, but a company like this, in a space like this, should really be performing better than this. The Capital Currencies deal looks sensible, and served to temporarily rally stock in January, but shares have dropped again since.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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