Numbers

The Numbers

Wise trades at ~27x underlying earnings and ~17x reported earnings — the gap tells the entire valuation story. The market must decide whether to value Wise on underlying PBT (£282M, excluding excess interest income) or reported PBT (£565M, including it). At 21% underlying margins — well above the company's own 13–16% target — the single metric most likely to rerate or derate this stock is not revenue growth but what happens to the interest income above the first 1% yield when rates normalize.

Revenue & Earnings — 10-Year View

Revenue has compounded at 50%+ CAGR since FY2016. The inflection in operating income from FY2023 onward is primarily interest-income driven — in FY2022 (pre-rate hikes), operating income was £49M; by FY2025 it was £580M. Most of this jump is excess interest income on customer balances, not operational improvement alone.

Gross margin expanded from 62% to 80% — but this includes interest income in the numerator. Operating margin jumped from 9% to 35% between FY2022 and FY2024, almost entirely due to interest income. On an underlying basis (excluding excess interest), margins are 21% — strong but not as dramatic as reported figures suggest.

Cash Generation — Are the Earnings Real?

Cash conversion is healthy. CFO/NI has averaged above 100% over the last 3 years. The FY2025 underlying FCF of £333M converts at 118% of underlying PBT — indicating high-quality earnings. Note: Wise's cash flow statement mixes customer-fund flows with operating flows, requiring adjustment — the "underlying FCF" metric strips these out and is the more reliable measure.

Capital Allocation

Wise does not pay dividends and has not done buybacks in the traditional sense. Capital allocation consists of:

• Employee Share Trust purchases to offset SBC dilution: £73M in FY2025
• Infrastructure investment: committed to doubling annual spend and tripling marketing over medium term (~£2B over two years)
• RCF repayment: reduced borrowings from £203M to £99M

SBC was £72.5M in FY2025, flat YoY — representing 4.4% of underlying income. The company is actively buying back shares through the Employee Share Trust to neutralize dilution.

Balance Sheet

The balance sheet looks leveraged on the surface (£17.9B liabilities on £19.2B assets) but is structurally sound. The vast majority of liabilities (£17.6B) are customer balances held in safeguarded accounts — matched by corresponding cash and investment assets. Wise's own capital is £1.3B of Group eligible capital, well above regulatory minimums. Net corporate debt is minimal at £99M in borrowings, partially offset by £1.4B of own cash. Investment grade ratings (BBB from S&P and Fitch) confirm balance sheet quality.

Valuation — Historical Context

The stock currently trades at ~27x reported earnings and ~39x underlying earnings. On underlying earnings (the metric the company manages to), the valuation is demanding but consistent with a 15-20% CAGR grower with a large addressable market. On reported earnings, the stock appears cheaper — but this relies on interest income persisting at current levels.

Peer Comparison

Wise trades at a premium to all public peers — justified by its superior growth and margin combination. PayPal is much larger but grows at 7% with lower margins. Remitly grows faster but is unprofitable. Western Union is cheap but structurally declining.

Fair Value & Scenario

At 1083p, the stock sits at the base case — pricing in continued strong execution but no upside surprise. The critical variable is whether the market values Wise on underlying or reported earnings as interest rates evolve.

The numbers confirm that Wise is a high-quality, fast-growing business with genuine cash conversion and minimal balance sheet risk. What the numbers contradict in the popular narrative is the margin story — reported margins of 35% are not sustainable; underlying margins of 21% are above target and will compress as the company ramps investment (guided to double annual spend). What to watch is the Q1 FY2026 results: if underlying income growth comes in below 15% or margins begin compressing ahead of the investment ramp, the premium multiple faces pressure.