Tyro Payments (ASX: TYR) reaffirmed its fiscal 2026 gross profit and EBITDA margin guidance of AUD 230 million-AUD 240 million and 28.5%-30%, respectively. The firm noted “strong performance” for first quarter of fiscal 2026 at its AGM, with core, non-Bendigo payment volumes up over 6% from the prior period.

Why it matters: The update aligns with our view that Tyro can continue growing transaction volumes despite competitive pressures. Growth is also exceeding broader trends in Australian retailing, where consumers are more optimistic following multiple interest rate cuts.

  • We expect overall retail sales growth to recover from fiscal 2025 levels, underpinned by a tight labor market, rising wages, a stable savings rate, and improved consumer sentiment.

The bottom line: We retain our $1.30 per share fair value estimate. Shares are undervalued. While competition in the payments space is intense, we believe Tyro can maintain its competitive position as it enters select adjacent markets and continues to enhance its products.

  • Investors may be concerned about Tyro losing share in the noncash payments space, but we believe our forecasts already reasonably account for this risk. We project low-single-digit volume growth per year over the next ten years, with growth in core merchants offset by Bendigo merchant losses.
  • Payment service providers face an array of potential regulatory changes. We believe Tyro is better positioned to respond as its more contemporary product suite requires minimal updates to meet new regulations, while competitors with older technology face costly overhauls.

Between the lines: Tyro will replace outgoing CEO and Managing Director Jon Davey with Nigel Lee, who commences on Jan. 12, 2026.

  • We believe Lee is well-positioned to drive Tyro’s growth given his extensive tenure in the payments, financial technology, and digital commerce sectors across global firms, including Ingenico, American Express, First Data, MoneyGram, and DataMesh Group.

Tyro shares remain undervalued

Tyro Payments provides merchants with the required infrastructure to accept electronic payments, as well as business banking products. It is the fifth-largest merchant acquirer in Australia by terminals, behind the major four banks. The firm mainly caters to small to medium-size enterprises in the hospitality, retail and health sectors. It is also expanding into adjacent verticals like trade, accommodation and services.

Tyro has historically gained share in the Australian card payments market--especially from generic nonbank merchant acquirers. Its value proposition is to address merchant friction points, rather than being a generic merchant acquirer. Tyro’s solutions are easily integrated, accept a broad range of payment types, and come with a multitude of ancillary features. These features can be industry-specific (for example remote payments and bill-splitting for restaurants) or available to all (for example online gateways for e-commerce payments or least-cost routing). The intention is to embed its solutions into a merchant’s ecosystem to limit switching; and allow Tyro to cross-sell other products like business loans.

Tyro acquires merchants mainly via digital marketing and referrals from its point-of-sale system partners. Prospective merchant acquiring partnerships with other institutions--such as its alliances with Bendigo Bank, Telstra, and Australia Post--is another avenue for growth.

We see strong growth prospects from increasing penetration into a broadening addressable market. This is likely to be backed by further bolt-on acquisitions to enhance its offerings and the structural shift toward electronic payments. But improvements in gross profit margins may be limited due to competitive pressures, despite benefits from lower interchange and scheme fees due to growing debit card usage. The major banks have a reinvigorated their focus on banking and global merchant acquirers are contending for a slice of the overall payments market. We believe Tyro will keep reinvesting for growth, limiting the degree of operating leverage it can achieve.

Bulls say

  • Tyro’s growth outlook is strong and there is potential for ongoing market share gains from smaller/generic merchant acquirers.
  • Merchants benefit from using Tyro, as evidenced by signs of client stickiness to date. For example, there has been growing takeup of Tyro’s ancillary features, increased cross-selling success and limited merchant churn, even after the January 2021 service outage.
  • Tyro will be increasingly profitable and cash-generative over time. This is due to its limited capital requirements and ability to leverage revenue growth over its fixed costs.

Bears say

  • Tyro’s offerings are replicable by larger, better-resourced institutions with existing and bigger payment networks. As such, Tyro may need to match its larger peers in pricing over the long run.
  • As an early stage financial technology firm, Tyro is vulnerable to competing innovation and regulation risks that could diminish the relevance of its business.
  • Increased competition could necessitate higher spending on software, terminals, salary and marketing. This may result in lower-than-expected profitability and return on capital.

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