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PayPoint looks beyond mobile top-ups

PayPoint is offsetting a declining mobile top-up market with good growth in retail services.
November 28, 2014

PayPoint (PAY) is delivering solid top-line growth, with net revenues - which strip out commissions and customer funds - up 7 per cent year-on-year in the first half. But the payment solutions group is also having to spend heavily to keep its technology up to date in a very fast moving market, so operating profits rose by a more modest 6 per cent.

IC TIP: Hold at 948p

In March, the group merged its internet-payment and mobile-phone payment businesses to meet demand from its merchant customers for multi-channel payment services. But net revenues were still flat in the combined division, with growth in its parking payment unit - a strategic focus for PayPoint - offset by pricing pressures from larger merchants. The mobile top-up business also continues to decline, with transactions down 8 per cent to 45.8m.

Yet these problems were offset by strong growth in its retail division, where net revenues rose 17 per cent to £13m. That was driven in particular by money transfer and parcel transactions, which increased by more than half during the period. And the group’s bill and transactions business continued to benefit from its expansion into Romania. Transactions in the country grew by more than a half thanks to market-share gains and the launch of new services, such as road-tax payment at PayPoint sites.

Broker Canaccord Genuity expects adjusted EPS of 55.4p, up from 51.8p in 2013-14.

PAYPOINT (PAY)

ORD PRICE:948pMARKET VALUE:£645m
TOUCH:948-956p12-MONTH HIGH:1,212pLOW: 857p
DIVIDEND YIELD:3.8%PE RATIO:17
NET ASSET VALUE:152p*NET CASH: £28.7m

Half-year to 30 SeptTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201310221.324.111.4
201410422.526.112.4
% change+2+6+8+9

Ex-div: 4 Dec

Payment: 18 Dec

*Includes intangible assets of £65.7m, or 97p per share