Purchase of Block (ASX: SQ2)

7th November 2024

Across the Australian component of investor portfolios (Growth Tilt), we have bought Block (ASX: SQ2), a leading technology company offering financial services to businesses and consumers.

Block has 2 main divisions – Square and Cash App.

Square offers point-of-sale systems and software solutions for merchants, including payment processing, business management tools, and financial services

Cash App operates a digital wallet solution allowing its users to easily send, receive and manage money through their mobile device

We are attracted to Block for the following reasons:

Dominant market positions in North America

Multiple growth opportunities

Strong ability to execute on product innovation

Block has three key levers for value creation that we would like to highlight:

Square obtains a long runaway for growth ahead, currently capture only just ~5% share of its estimated addressable market. We view the business as a key beneficiary of the shift away from legacy payment solutions at the point-of-sale as merchants increasingly look for integrated software solutions and financial services. Their focus, scale and re-investment in products across the retail and restaurants segments should support continued penetration of this market

Cash App exists as the leading North American digital wallet solution and #1 Finance App in the Apple Store. Providing users the ability to send and receive money, gain access to a free debit card and receive direct deposits we see ongoing growth in the platform and expansion of additional products as their next lever for value. The ability to further monetise their +50m user base will see higher transaction activity and usage as they look to further support their customer base

Return to profitable growth. Block announced in February 2023 a commitment to shift its focus on balancing top line growth and profitability vs its prior strategy of rapid growth to scale. Outlining a 25% Operating Margin target by 2026, Block is currently underway on their strategy, achieving a 5% Operating Margin in CY23. Moving forward we expect Block’s new investment framework to deliver more sustainable returns to shareholders, having now gained the required scale in their business to remain profitable

We have funded the purchase of Block via the sale of A2 Milk.

As always, thank you for your ongoing support, it is very much appreciated. If you have any questions or would like more information, please contact your adviser.

Warnings and disclosures

This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.