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PayPoint offloads online business (finally)

PayPoint has finally sold its online business to Capita for £14m in cash, but not everyone sees it as good news.
January 8, 2016

PayPoint (PAY) has agreed the sale of its online payments business to Capita (CPI) for £14m, just two months after the payment processing provider was forced to write-down £18.4m in associated goodwill for its online and mobile businesses. The online business comprises PayPoint.net and Metacharge. Shares in the payments specialist fell 1 per cent in early trading in a session which saw analysts at Barclays downgrade the company.

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Management announced the sale of PayPoint’s mobile and online businesses was taking longer than expected at the time of the group’s first-half results in November. The company undertook a write-down on the associated goodwill, after offers it received for the businesses were lower than management had anticipated.

PayPoint faired poorly in the first half, with pre-tax profit falling 86 per cent. The group’s progress was not only held back by its online and mobile businesses, but by a lacklustre performance from its top-ups business and increased costs from its Collect+ joint venture.

Management decided to sell the online and mobile businesses in order to focus on its retail services, particularly its multichannel products - systems it sells to its clients to allow those businesses to offer their customers a variety of ways to pay for goods and services.

How analysts responded

Analysts at Barclays have now reduced their adjusted EPS forecasts for the 2016 financial year by 3 per cent to 59.3p and by 2 per cent for FY 2017 to 64.2p.

The bank said it “believed the single digit earnings growth, risks longer-term to the business model and nature of the issues with Collect+ and the mobile and online business" justify a valuation for Paypoint shares of 13 times 2017 earnings. As a result they have set a target price of 850p, compared to the 900p mark at which the shares are currently trading.

Jeffries analyst William Kirkness was more optimistic. He said the £14m sale price was better than expected, given the goodwill write-down in November.

Analysts at Liberum were also more bullish on PayPoint's prospects, with the sale of its mobile business in mind.

"The mobile business has around £30m of net assets and we would expect it to sell for at least book value," ran a note. "We now expect total proceeds from the mobile and online sale of around £44m, up from £37m at the interim results, and still expect a cash return to shareholders."