ITPM Flash provides insight into what professional traders are thinking about in the markets RIGHT NOW! In this episode of ITPM Flash, Anthony Iser discusses the major market moves following the release of Deep Seek, highlighting its impact on AI and software companies. While the AI infrastructure debate continues, he focuses on how AI-driven applications will drive growth for software companies, particularly Bill Holdings. As a key player in the payments sector for SMBs, Bill Holdings has seen strong revenue and customer growth, with significant upside potential as AI enhances efficiency. Anthony outlines a bullish options strategy ahead of Bill Holdings’ February 6 earnings report, aiming for a 3:1 return with potential for even greater upside.
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ITPM Flash Ep66 Stacking Bills
Episodes of ITPM flash are intended for educational purposes only. Any and all content included in ITPM flash episodes should not be taken as investment advice, personal recommendation, or an offer of or solicitation to buy or sell any financial instruments. The following podcast is an audio extract from an original YouTube video. The entire ITPM flash series can be found at the Institute of Trading YouTube channel, where you can also see charts and other supplementary material to complement the conversation. Good afternoon everyone, Anthony Isor from ITPM here with another ITPM flash. Well, it's Wednesday the 29th of January and there's been lots of action in markets for the last couple of days with the release of DeepSeek over the weekend. It's subsequent move to number one in the app download list and despite conjecture around what it cost and how it came about, clearly having a major impact on markets. As Mark Andreessen said, this is AI's Sputnik moment, so I'm not going to debate what happens with Nvidia or AI infrastructure and the rollout in that world. Maybe it's a buy, maybe it's a sell. I don't have clarity yet and I don't think we'll get clarity for quite some what time. What I do know is it's likely to bring forward the application layer of AI. That is the software companies providing agentic products to their customers that are going to help them become more efficient. Now there's going to be a whole range of these companies coming out. Most of them are companies we know existing software companies that are going to be providing these services. What are they going to see? They're going to see cost reductions for their clients, for themselves they're going to see a big boost in revenue, they'll see cost reductions themselves using their own products internally and they're going to see huge margin expansion. Most of these software companies will probably face competitive pressures from other companies, AI-first companies perhaps, in the future. In the short term I don't think there's going to be too much doubt that there's a lot of productivity gains to be made and lots of profit and margin expansion for these companies. Which one am I looking at? I'm looking at bill holdings for this trade. One of the things about bill holdings is it deals with small and medium businesses. It is a provider of software services in the payment sector particularly expense and spend. Accounts payable, accounts receivable and it's grown rapidly over the last few years. The three main parts of their revenue base, subscription base like most software as a service businesses but that's only 20%. They do click the ticket, they take a transaction revenue on every transaction that goes through and they also make a profit, again, around low double digits, 12% or so on their float, the funds that they keep in-house while processing those transactions. There's a few other things you can see here that I think are interesting about this stock or certainly things that we need to note. Short interest, 6.8% so nothing outrageous, share price as you can see has come on from almost $350 back prior to this big rate cutting cycle. The post-COVID boom that we saw in share prices, stocks from now $97, $07, got as low as about $50 or so six or 12 months ago. We're seeing strong growth on the top line, mid-double digit to through to 19% in 2027. I would expect as AI, agentic products get rolled out to customers that we'll see large uplifts to that and that's the essence of what we're looking for in the ITPM process. We're looking for price momentum obviously on the back of sales and earnings momentum. We're looking for upgrades and I think we can see lots of it from this whole sector and in particular this company. If I look at the KPIs, the way that we would want to measure a company like this, things have been going incredibly well. Total revenues over the last five years have gone from under 200 mil to about 1.3 mil, up 24% year over year in the last financial year. Total payment volumes, so that's the transactions running through the network, $76 billion counting for more than 1% of GDP going through their entire payment network. That's a 10% increase year over year and if we go back to just a few years ago at COVID times 2020, there was about $40 billion, so almost doubled in the last four years. There was profit margin increasing as well as we would like to see but at times during strong growth sometimes that won't happen. 79% through to 85.5% in 2024, I wouldn't be surprised to see that go up a little bit but it's hard to squeeze too much out of that from here. What we're looking for is an increase in revenue at that same volume rate and then the customer base. All businesses have ways of increasing revenue. We can put prices up, we can get more sales. One of the ways we can increase that volume of sales is getting more customers and if we can get an embedded customer base in a business like this, that holds us in great position for the future. So 100,000 in 2020 now sitting at a bit over 460,000 huge increase in store customer base across their network, people who have paid into that customer base or been paid by that customer base, a network of 7.1 million payers, that's where you get that 1% of US GDP. A quick look at the business and as I said, I'm expecting this to be driven by AI over the next couple of years. I would like to see top line growing, bottom line growing, better than expected and seeing multiple expansion in terms of valuation as at growth surprises on the upside. But we still want to look at the qualitative measures. These guys are market leader, their financial performance has been strong and the AI and tech innovation that they've got coming forward at the moment is first to none. And with the agentic model starting to be rolled out, being brought forward, we're going to see large increases over the next couple of years for the top line. Of course, small and medium businesses are at risk to the economy, that's their customer base. That's probably the key weakness at this point in time. If there's a recession or a major slowdown in the economy, none of which looks likely just at the moment, we could see that top line slowing down a little bit, at least be a headwind. But we can wait to see that coming forward before it's going to be an issue. Of course, there's competition, but they've proven themselves at the moment to be able to grow much faster than the market. Like I said, that top line growth coming through at 15 to 19% for the next few years with very much risks to the upside on that. We've got international expansion opportunities, we've got product diversification opportunities. And of course, the whole reason why I'm even looking at this sector in an aggressive way, we've got the AI innovation and the agentic model that's going to get rolled out over the next couple of years. And I would expect them to talk about that quite strongly in their next quarterly report. A report on the 6th of February, which leads me to the key reason, or the key reason why I'm doing a structure that I tend not to do all that often. I'll do it sometimes, but I prefer to look at calendar spreads. In this case, I'm going to look at a bull call spread, a vertical spread, and I'm going to make a slight variation on it as well. So again, thinking about a $100,000 portfolio and willing to risk $5,000 or $6,000 or so, I am looking at buying 12 of the March $105 calls. Normally with a vertical spread, we would sell the same amount as we've bought, in this case it would be selling 12 contracts. But I'm going to sell 8 contracts of the 125s and that'll get me a net spend of about $6,000 and it will get me a return of 3 to 1, which is again the ITPM target for these types of trades at $125. But because I've bought 12 and only sold 8, I have a net long position because I think there's a chance that things go even better than that. So I'd like to participate in that upside if it comes through. So my prize target of $125, I've got a 3 to 1 return. If the share price goes higher, I've got exposure to it. The results are coming out in just a week or so's time. We've got strong tailwinds for the sector. There's going to be lots of discussion about this. There's going to be momentum and price action and price movement, fun flow coming from AI, infrastructure and hardware that's done incredibly well because of the uncertainty moving into the software space. I think bill holdings is going to benefit from that. So that's what I'm looking at on the back of this deep seek release over the weekend. You can have your views about what's the outlook and how legitimate it is. It's clearly, it clearly works. I suspect they've spent far more than $6 million on it. The timing of the release, for sure, Chinese New Year, straight after, you know, Stargate $500 billion announced. That's all irrelevant. People can replicate it. It's the number one app. It's going to have an impact in some way. And I think the main way is bringing that application layer forward in time. So bill holdings, trade structure that I'm looking at, I think this one's going to work out. Okay. So there you have it. Talk again soon. [MUSIC] [BLANK_AUDIO]