Stock In Focus: Will Woodford Woes Provide Paypoint Buying Opportunity?

11th Jun '19 by Roland Head

7 comments 5044 reads

The troubles affecting Neil Woodford were hard to ignore last week. And although I don’t think this is the place to comment on Mr Woodford’s situation, I have been cross-referencing my portfolio with the Woodford Equity Income fund.

I’m interested to see whether any forced selling by the fund manager could create an opportunity for me to top up my own holdings at attractive prices.

As far as I can see, I only own two stocks that feature in the Equity Income fund. One of these is newly-promoted FTSE 250 payment processor PayPoint (LON:PAY). This stock doesn’t feature in the SIF Folio I run here at Stockopedia, but is a part of my main (personal) income-focused portfolio.

As it turns out, PayPoint also comes very close to qualifying for my Stock in Focus screen. So in this piece I’m going to take a brief look at the attractions (and risks) of this high-yield favourite.

The UK’s biggest retail network?

PayPoint operates a network of payment terminals in convenience stores and corner shops. Its network was originally setup to allow customers to make cash payments for utility bills and mobile top ups. But as demand for cash bill payments has fallen, the company has started to evolve.

The firm’s terminals are now able to provide a fully-featured point-of-sale system for small retailers. The latest PayPoint EPoS system replaces a conventional till, providing support for card payments, a cash drawer, inventory management, reporting and even ordering stock from selected wholesalers. Other services for customers include cash withdrawals and the Collect+ parcel service, which is run by PayPoint.

In the UK, the group’s network now includes 28,000 stores. I estimate this as being more than half the addressable market, when supermarkets are stripped out:

PayPoint is keen to point out that its network is larger than the Post Office, and larger than any UK bank or supermarket. Apparently, 99.5% of the UK’s urban population lives within one mile of a PayPoint retailer. In rural areas, 98.5% of people live within five miles of a retailer. The company also has a network of c.18,500 sites in Romania, where cash remains much more dominant.

My view is that such broad market penetration is likely to remain a valuable asset, if combined with good management and technical innovation.

Interestingly, long-time CEO…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Trident

11th Jun '19

One thing I don't believe you mentioned was that PayPoint (LON:PAY) plan to have quarterly dividends in future. This does not directly affect any fundamentals I guess, but may flatten some of the surges around the previous twice yearly dividend trading opportunities.

It may also broaden its appeal to income earners.

Roland Head

Hi Trident,

Good point, thanks for flagging this up. Quarterly dividends will make PayPoint (LON:PAY) quite unusual, but as you say, it should appeal to long-term income investors.

Regards,

Roland

williamhargrove

Hi Roland,

Thanks for the informative article. I also hold this stock in my income portfolio. As you mention, it is a steady cash generative business.

Out of interest - have you reviewed Hollywood Bowl Hollywood Bowl (LON:BOWL) for your SIF portfolio? This has become a recent addition to my own income portfolio. Good cash generation and margins with a little more growth potential than PayPoint (LON:PAY).

Best regards, Will.

jonesj

Surely a large chunk of PayPoint (LON:PAY) business could be done by web and phone apps ? Also, a lot of the payment work becomes less viable if customers become ever more cashless.

I have used them for paying bills a few years ago, but it's much easier to do it on line from the comfort of my armchair.
Looking for something less susceptible to disruption, physical parcel services would be more difficult to move on line, although competition does include those very convenient Amazon lockers. I see they also provide the cash payment services for Monzo & for all I know, Paypoint could become the bank "branch" for other start up banks. Starling use the Post Office for this. It's difficult to envisage this as a large growth market.

Hi Will,

Thanks for your comment. Personally I'm a big fan of Hollywood Bowl (LON:BOWL) but it hasn't yet qualified for my SIF fund. A quick check suggests that it's not far off -- I may review this one at some point.

Regards,

Roland

Hi jonesj,

Thanks for your comment. I agree that payment-related services may well be prone to disruption.

However, I think I'd argue that the financial infrastructure within the core PayPoint (LON:PAY) network of convenience stores should be more resilient. Shops will still need to process payments and track sales and inventory, even if payment is made by someone waving their phone around.

I think the parcel service has promise too, if they can improve its profitability. Not sure if Amazon lockers are a major competitor -- as a rural dweller I hardly ever see them except sometimes at large shopping centres.

All the best,

Roland

andrea34

12th Jun '19

I rarely buy stocks that have profit and eps (and, ideally, revenue) growth less than 10%... and as such PayPoint (LON:PAY) is of little interest to me; this is not to say that the stock is not necessarily without merit - the chart looks very positive to me, with the 130 MVA recently breaking through the 200 MVA to show a solid uptrend.

Stock in Focus: Will Woodford woes provide Paypoint buying opportunity?

The UK’s biggest retail network?

Unlock the rest of this article with a 14 day trial

About the Author

Roland Head

7 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...