PayPoint still growing

The number of transactions processed by payment systems operator PayPoint (PAY) in the final quarter of last year increased by 5 per cent to 193m, compared with the same period in the previous year. This helped to push turnover up by 4 per cent to £55m. Adjust for retailer commission and the cost of mobile top-ups, and net revenue rose 18 per cent to £28.7m. The group reported strong growth in bill and general payments, partly offset by a fall in net revenue from mobile top-ups as more people switch to a tariff base.

Transactions in the UK and Ireland grew 8 per cent on the year, driven by an increase in the number of new pre-pay meters installed, as well as higher consumer energy use in the cold weather. Moreover, retail services transactions, such as debit and credit card payments, increased by 23 per cent. At the group's other operating division in Romania processed bill payments increased 32 per cent to 6.6m and the number of terminals there increased by 177 to 7,179. Internet transactions were also up 18 per cent to 24m, with PayPoint.net now linking into 16 major banks and providing a secure online payment facility for over 5,600 web merchants.

JPMorgan says…

Overweight. Progress continues in PayPoint's newer ventures, with the Romanian business continuing to grow profitably, and, while this is from a relatively low base, we believe that current growth rates demonstrate the group's ability to leverage its existing infrastructure. The balance sheet looks strong, too, with net cash of £26.6m - even after the payment of an interim dividend. So, while the shares command a premium, we believe this is justified given the group's market-leading position, resilient revenue streams and growth opportunities. However, the main risk in our view would be a failure to continue to increase profitability in the group's newer businesses, specifically the successful implementation of the Simple Payment service being established for the Department of Work and Pensions.

Numis Securities says…

Sell. Unless we are wrong by a considerable margin, it is hard to see how investors will make money owning the shares given the high earnings multiple - almost 19 times for 2013. In fact, the one-year average forward rating over the past five years has been nearer 13 times. Indeed, in our view, the share price ran up too fast in 2012 and we believe there's better value elsewhere. The core business on a standalone basis would justify a premium were it not for the ongoing risk that management continues to spend shareholders' cash on new ventures. None of the acquisitions made since 2007 has yet to provide a reasonable return on capital. Expect 2013 pre-tax profit of £41.8m and EPS of 46.2p.