On the face of it, today’s update from Wise (WISE) was all good news. The £9 billion business reported a strong third quarter that produced £276.6 billion of revenue, 30% active customer growth (to 7.5 million) and 18% growth in transaction volumes.

With the latest numbers, the company upgraded its annual income growth guidance to between 42% and 44% from the previous 33% to 38% range.

‘It’s difficult to fault Wise’s trading momentum as it continues to deliver strong top and bottom-line momentum across both consumers and corporates’, said Megabuyte analyst Leuan Turner.

WHAT’S HOLDING THE STOCK BACK?

So why such a limp share price today? At 10am, the stock had nudged 0.6% lower to 874p.  

Two things spring to mind.

First, Wise is currently earning bumper profits on customer cash held in accounts thanks to higher interest rates. With pressure building for central banks to cut rates, even Wise admits that guidance for EBITDA margins (earnings before interest, tax, depreciation and amortisation) is elevated relative to its medium-term guidance of ‘at least 20%’ due to the high net yield on customer balances.

To put some colour on this, consensus is calling for an upgraded full year 2024 EBITDA margin of 37%, or about £464 million.  

VALUATION HAS SOARED

The second issue is valuation. Wise shares have shot up 35% since late October 2023 and have nearly tripled over 18-months. According to Stockopedia data, that leaves the shares trading on a 12-month rolling price to earnings multiple of 31.5 times.

Looking at it another way, it values the business at around 18-times forward EBITDA and 6.7-times forward sales, according to Megabuyte's calculation. That latter measure is a significant premium to US peer Remitly on about 3.3 times.

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