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.
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."