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Investment Thesis
Tingo Group, Inc. (NASDAQ:TIO) works in the financial technology and agri-fintech businesses to help rural farming communities in Africa, Southeast Asia, and the Middle East get access to and improve their finances. The firm isrevolutionizing African farming with agri-fintech. Nwassa stands out among its offerings because of the important role it plays. It’s a cutting-edge digital platform that facilitates the finance of farmers and the selling of agricultural goods wherever and whenever it’s needed.
TIO’s commitment to bettering Africa’s future is fueled by its congruence with the SDGs established by the United Nations. The organization has taken what I consider a very successful business model in pursuing its goals. I anticipate the company will continue its ascent toward profitability thanks to its existing exclusive deal in Nigeria. I forecast that TIO will achieve profitability this year. I am bullish on this stock, given its business model and excellent offerings relevant to African agricultural needs.
The Business Model
From what I can tell about how this company works, it uses a customer-led growth (CLG) business strategy. CLG is an approach that puts the customer experience first by using user insights to help the customer and the company get what they want from the product. The company’s Nwassa platform, which is customer-centered, is an excellent example of this mode.
The primary distinction between product-led and customer-led expansion is that the former centers on the product’s user experience, while the latter centers on the customer’s. But isn’t the user the same as the customer? Not entirely; your end-user is the one who uses the product daily. Your client is the one who will be footing the bill. They can coincide, but it’s not guaranteed.
By prioritizing the customer’s wants and needs, the business may design a product that provides a superior level of customization without sacrificing usability. This is the ideal business model for this company, in my opinion, because it focuses on the consumer and produces a service tailored to the target market’s specific requirements. In other words, it will be a product of the people, leading to happy customers and a steady stream of repeat business. As a result, we can see why this tactic makes Nwassa a promising technological advancement. With such a solid foundation, I have confidence in the company’s further success.
The Nwassa Platform: Digitizing African Agriculture
In 2020, the firm unveiled its Nwassa Agri-Marketplace platform, which gives farmers a place to sell their fresh goods and directs interested customers to its proprietary messaging platforms, where the latter may make quick and easy purchases.
Tingo was largely motivated by a Rockefeller Foundation research that found post-harvest losses for rural farming communities in Nigeria to be as high as 60 percent. This meant that more than half of each harvest’s economic potential was wasted. Taking the digital marketplace as a starting point, TIO plans to develop solutions and services in the agriculture vertical to alleviate this problem by enhancing the supply chain and distribution network and connecting customers with those farmers.
This platform is an excellent idea because it provides farmers with numerous opportunities. Growing adoption of technology, especially mobile technology, gives farmers a chance to increase productivity, safeguard crops, and connect with new customers at a time when the continent’s population is rapidly expanding, and poverty rates are skyrocketing.
Tingo, a tech behemoth, has accomplished this in Nigeria, where its Nwassa platform is helping more than 10 million farmers address their most pressing problems using mobile devices. It is using 2022 as a stepping stone towards pan-African expansion, with recent expansion into Ghana and a host of additional nations expected in the coming years. The company’s stated mission is to prioritize farmers’ needs and advance communities’ socioeconomic upliftment.
I believe this technology will be crucial to the organization’s success in the coming years, especially in Ghana. As such, I think this platform will have a lasting, positive effect on the company’s bottom line and the livelihoods of African farmers.
The Exclusive Deal: A Major Milestone Towards Profitability
TIO made public a new agreement (the “Agreement”) that its wholly-owned subsidiary, Tingo Mobile Limited (“Tingo Mobile”), has made with Prime Commodity Exchange (“PCX”) and All Farmers Association of Nigeria (“AFAN”).
In accordance with the provisions of the deal, AFAN has leased its entire network of warehouses to Tingo Mobile for 30 years. These warehouses currently number 2,322 and serve all 774 local government areas in Nigeria. Over the following two years, the parties to the Agreement have pledged to expand their network of warehouses to 80,000 locations; the Agreement will also apply to these new locations. The AFAN warehouses primarily store crops and agricultural produce for its farmers and are at least 200 square meters in size.
The crops and other products received in the partnership’s warehouses are expected to provide a significant and valuable source of supply for Tingo Foods’ food processing business and its Tingo DMCC commodity trading and export business, and the Agreement grants Tingo Mobile the right of first refusal to purchase or trade such goods.
By coordinating the use of the warehouses by AFAN’s members, Tingo stands to gain the storage and ancillary revenues generated and the first right of refusal to purchase or trade the crops and other products received into them. In light of AFAN’s recent announcement of a nationwide program to register all 60 million farmers in Nigeria, and given AFAN’s position as the umbrella body of all 56 recognized commodities and agricultural associations in Nigeria, it is anticipated that the quantities of crops and other products delivered by AFAN’s members into the partnership’s warehouses will be substantial.
A Look At The Numbers: Nothing Short Of Optimistic Future
Given the promising business model and the Nwassa platform, the company has been on an upward trajectory regarding profitability. With the above exclusive deal, among other milestones achieved, I see the company turning profitable this year. This can be backed by solid performance in 2022. Below are the highlights for the year.
- Cash on hand for Tingo Group on December 31, 2022, was $500.3 million, up from $96.6 million in the prior year.
- In 2022, it earned $146.0 million in net revenue (including Tingo Mobile for one month starting on December 1, 2022), a significant increase over the $55.7 million earned the previous year.
- After adjusting for non-recurring mobile handset sales of $301.0 million in 2021, pro forma consolidated revenues for 2022 were $1.152 billion, up from $921.5 million the previous year.
- In 2022, sales from the Nwassa Agri Fintech platform reached $532.2 million, an increase of 168.0% from 2021’s total of $198.6 million.
- Compared to a loss of $47.0 million in 2021, pro forma consolidated operating income in 2022 was $554.6 million.
- On its Nwassa Agri Fintech platform, Tingo Mobile expanded the number of users from 9.3 million on September 30, 2022, to 11.4 million on December 31, 2022, and handled more than $1 billion in client transactions during December.
Looking at these data only inspires optimism. The company appears to be improving on all fronts; thus, I anticipate the momentum to pick up since every lever is in motion and moving in the right trajectory.
Valuation
Relative valuation metrics suggest that TIO is an excellent value. I used PS and PB ratios in my evaluation without earnings. The company’s PS and PB ratios, which are 1.91 and 0.44, respectively, are far below the respective industry medians of 2.59 and 2.75. Based on these ratios, the company is trading at a discount compared to its peers. In my view, this gives investors a good opportunity to cheaply cash in this promising company.
The company is also significantly undervalued, according to a DCF model by FinBox, which projects a fair value of $24.64 and an upside potential of more than 1000%.
Given the company’s strong fundamentals, I believe it can exploit its potential. As a result, it is high time investors capitalize on the cheap entry point.
Risks
TIO may look like a good investment, but it comes with some risks. The foreign exchange (FX) difficulty is a big concern for investors in this corporation. Given the size of the company’s investments in Nigeria, it is reasonable to be concerned about the value of the naira relative to the dollar. With a 48.87% decline in value against the US dollar since the beginning of 2020, the naira is the fourth worst-performing currency in Africa and the eleventh worst-performing currency in the world. Since the company has operations outside of Africa, they may be forced to rely on the US dollar, putting the company at risk. The company’s bottom line would take a hit in this scenario because of the weak local currency.
Conclusion
TIO appears to be at the forefront of the digital revolution in African agriculture, providing a long-term opportunity for the business. It has solid fundamentals and is reasonably priced, making it an attractive investment opportunity. However, prospective investors should be aware that agriculture is seasonal and volatile, which may bring risks to their investments that were not previously apparent.