PayPoint slowly recovering

Point-of-sales company PayPoint (PAY) is trying to crawl its way out of a pandemic hole. The promising sign is that continuing revenue is up markedly on the prior-year interim. However, this is still around 30 per cent adrift of the pre-pandemic level.

The shift from cash to digital has helped the shopping portion of the business recover a large portion of its losses, with revenue up 51 per cent to £29.3m. The issue at the moment comes from payments and banking, which saw a 3 per cent fall. Small energy providers are under pressure from the sudden increase in gas prices, with many going out of business, and there is a continued trend of higher top-up amounts, which means lower transaction volume.

The hope for the business comes through its in-store card payments business. Payment volumes increased 9 per cent year on year and the pandemic has accelerated the adoption of contactless payments. During 2020 the number of these types of transactions in the UK increased by 12 per cent to 9.6bn – the direction of travel appears assured.   

FactSet consensus forecast is for EPS to rise to 52.9p for the 2022 full year up from 21.9p. This suggests that a recovery is gathering momentum but is still well below the 66.3p for 2020.

A forward PE ratio of 12 isn't exorbitant given an operating margin of 40 per cent, together with the group's solid cash flow generation, both of which are supportive in terms of distributions, but sluggish underlying revenue growth, though a function of market disruption, leaves us cautious on near-term prospects. Hold.

Last IC View: Buy, 746p, 29 May 2020