Paypoint, free money or money trap?

9th Oct '17 by John Gibson

10 comments 5592 reads

It passes 5 Stockopedia screens, in all three sections: 3 Value, 1 Growth, 1 Quality (the Greenblatts Magic Formula, which is where I first noticed it)

The yield has now gone into the danger zone, 7.55% where the market is indicating it expects a dividend cut is coming up.
Expected revenue is about to fall from the over £200m every year since 2012, to £137m and £142 in 2018 and 2019.
Dividend cover falling from 1.00 to 0.87 (in other words the expected dividend is not fully covered!)
But they paid out a special dividend earlier this year.

My Questions are:
Do you know if that special dividend is included (as normal dividends are) in the Stockopedia page?
Does anyone follow this stock and know what recent, brokers/investment research groups, are suggesting?
What is causing the expected revenue fall?
Has this been adequately flagged up by the company? (so the market isn't going to be surprised by the upcoming dividend cut? and has already valued it at a reasonable price/yield?)

My apologies for posting little information and lots of questions,
If you can't take the time to type answers, I understand and would appreciate any links to places where there is independent company discussion/research.

Deep appreciation for any time you take on a response.
Warmly,
John

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thomasrichardbertram

27th Nov '18

Is it me or am I missing something. The free cash does not cover the dividend, were is the extra monies coming from and for how long. Can't go on for ever, but it is so easy to be sucked in by the dividend yield.

Brilliant Leader

They have surplus cash on the balance sheet so divi likely to be maintained for now (we’ll find out on Thursday when interims are published). Also, the dividend is not covered by last year’s cashflow, that might improve this year or next. I hold a small (recent) position and will be reviewing with a critical eye this week, post interims. I might continue to hold even if the divi is reduced to a more sustainable level because I like the quality and defensive characteristics on offer, albeit with limited growth.

Gromley

Hi John,

I haven't looked at PayPoint (LON:PAY) much at all, so can't answer most of your questions, although as crazycoops points out there will be greater clarity on Thursday.

I think I can though resolve the issue on the "expected revenue fall".

PayPoint (LON:PAY) report "revenues" and "net revenues" - "net revenues are c. 1/2 of "revenues"

(The Stocko figures I believe show "revenues" in the history but "net revenues" in the forecast.

The company says that the difference is a "pass through" element in the revenue, but I really think they need to provide greater clarity to avoid confusion like this.

If it is really "pass through"* then the figure they actually quote as "net revenue" is really "revenue" and the higher figure is "End User Spend".

Alternatively if it is not "pass through" then the higher figure is indeed revenue and the difference to the lower figure is part of the cost of sales.

* My understanding, from my CFO some years ago, is that the definition of "pass through" swings on who carries the non-collection risk, but I'm sure there are accountants here who could clarify that more rigorously.

jonesj

Now I am one of the dinosaurs who still use cash wherever possible.
I've even been known to dump merchandise on the side & walk out of shops when there is a queue at the only till which takes cash.

However, by & large the market is going away from cash payments. Those contactless cards seem to accelerate the process. Are Paypoint not simply operating in a declining market ?

tony akram

24th Dec '18

Was looking at this share and margins look good , however (it may be my ignorance ) but I feel the the trade receivables are too high eg in the annual report of 2018 revenues were £214 million yet trade receivables were £162 million (75% !!) with the following statement

Items in the course of collection represent amounts collected for clients by retail agents.
PayPoint bears credit risk and will have title to the cash collected on only £27.5 million
of this balance at 31 March 2018 (2017: £13.5 million). Credit risk is mitigated by daily
direct debiting and the suspension of terminals where direct debits fail. At the date of this
report, all but £38,000 has been collected from retailers

Not sure if I am worrying over nothing but figures do seem high at first glance.

25th Dec '18

I see the core Paypoint business as a buggy whip company.

Who in the younger generations will go to a store with with cash to pay a bill at Paypoint ? They will just do it on their phones.
The business has diversified, into parcels and so on, but appears to be ex-growth. Parcel turnover is small and decreasing. The last presentation shows growth only in Romania and I suspect the Payzone acquisition could be responsible for that.

However margins & PE ratio look attractive, so if I could convince myself that it's NOT a buggy whip company, it would be interesting. Or if there was evidence of profitable growth in at least one major segment of their business.

MarkOR

It's a great business. My corner shop uses the technology, and speak highly of the new unit roll out. From a financing perspective the business is unlevered. There was a comment from the CFO a few releases ago sayng that she was going to re-gear the balance sheet. I might be wrong but that's the reason why the dividend can be uncovered. I hold

26th Dec '18

Your corner shop may like it, but what is the long term outlook from a shareholder perspective?

The company had a good return on capital & is on a very acceptable PE ratio.
However, when paying for physical goods in cash is dying out (sadly), I expect Paypoint's core payment business will lose out to Web payments. I can pay my bills via a banking app now.

Their actual figures show a small decline in every sector except Romania, which appears to be boosted by acquisition.
I read through their presentation and there is much talk about why they are doing & nothing clearly stating where growth will come from.

ambrosia

18th Jan '20

Paypoint lost their contract with British Gas this month, thats bound to make a dent in their turnover.

that said it hasnt effected the slow up-trend in the share price. the question is; will it hit resistance at 1100, I averaged out at 1050, now my finger is getting close to the sell-all button

Russell Ali

3rd Sep '20

I won't ask whether you sold out, but what do you think about a buy now?

Paypoint, free money or money trap?

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John Gibson

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