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

Tuesday, Jun 11 2019 by
27
Stock in Focus Will Woodford woes provide Paypoint buying opportunity

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:

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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…

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PayPoint plc is a United Kingdom-based holding company. The Company's subsidiaries provide specialist consumer payment, and other services and products, transaction processing and settlement. It offers clients streamlined consumer payment processing and transaction routing in an integrated solution, through MultiPay. MultiPay gives users the flexibility to choose channels depending on their customers' needs, including mobile application, online, text, phone/interactive voice response, cash in-store and cash out. Its platform, PayPoint One, combines PayPoint services, integrated card payments and electronic point of sale (EPoS) all in a device. Its retails payments and services offerings include bill and general (prepaid energy, bills and cash out services); top-ups (mobile, e-money vouchers and lottery), and retail services (payment card, parcels and money transfer). Its mobile and online offerings include parking, permits, tolling, ticketing and bicycle rental transactions. more »

LSE Price
1066p
Change
 
Mkt Cap (£m)
727.5
P/E (fwd)
15.7
Yield (fwd)
7.7



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7 Comments on this Article show/hide all

Trident 11th Jun 1 of 7

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.

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Roland Head 11th Jun 2 of 7
1

In reply to post #482961

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

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williamhargrove 11th Jun 3 of 7

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.

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jonesj 11th Jun 4 of 7

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.

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Roland Head 11th Jun 5 of 7

In reply to post #482996

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

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Roland Head 11th Jun 6 of 7

In reply to post #483026

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

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andrea34l 12th Jun 7 of 7

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.

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have an interest in (profitable) commodity stocks.  I hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  more »

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