I actually think this company has a valuable product and has a smart CEO with a strong background in payroll systems. However, I think it is hopelessly over-valued at present.
I recently attended an investor presentation at which Asantha Wijeyeratne spoke. A few weeks earlier, I had talked with a chartered accountant who confirmed that the new payroll requirements for employers to submit PAYE within two business days of paying staff (Payday Filing) from 1 April, is indeed an issue with small businesses. At the seminar, Paysauce claimed that it was the only Payroll solution that met this requirement from 1 April and I have no reason to discredit that claim.
Using my valuation method of using estimated forward revenue for 12 months and calculating price to revenue as a proxy for PE (since PYS is a high growth company that can be expected to declare negative NPAT for the next year and more) I find that with a SP of 1.1 cents today, it has a value of 32.1 compared to 33.4 from XRO and 6.5 from Pushpay. This is based on PYS company guidance of 109% increase in gross revenue for 2019. The SP would need to be 0.22 cents to match PPH and 0.15 cents to match PLX which is on 3.5.
Normally I prefer to apply the operating margin to the gross revenue estimate to obtain a Price to Revenue at Margin ratio but PYS has not revealed its operating margin and so I have had to fall back to gross revenue. XRO has a very high margin of 83% and it is unlikely that PYS will exceed that. Whatever their margin is, it will almost certainly decrease as the company increases in size.
The other matter affecting PYS is the very large number of shares following its reverse takeover of MAD. Sooner or later PYS will consolidate its shares and following that, I fully expect the SP to move back towards a more typical valuation, which no doubt is a reason why the company will not want to consolidate in a hurry.
I have PYS on my watch list because I think it should do well but until the valuation reaches that for similar companies, I will stand aside. Although I used PPH as a comparison, I do not yet put it in the same class as PPH but would compare it more to PLX, which I have on a comparative ratio of 3.5.