This cashed-up German tech share is looking attractive.
GARP investors are always seeking out growth industries for bargain shares. This process should not preclude a slow growth economy, because there will always be specific sectors or themes that will generate growth. I reckon that the e-commerce market is set to be a good area for growth, irrespective of where the overall economy is headed.
The e-commerce market
According to Forrester Research's online retail forecast: "US online retail sales are projected to rise from $155 billion in 2009 to $249 billion in 2014 -- that's a 10% compound annual growth rate (CAGR); and online retail sales in Western Europe will rise from €68 billion in 2009 to €114 billion in 2014 -- or a 11% CAGR."
The growth is predicated on the back of e-commerce grabbing market share from 'bricks and mortar' retail. Internet usage is seen as growing, and demographics are favouring an increase in the number of people shopping online.
Wirecard
One interesting way to capture this growth could be through German listed Wirecard. It's a fast-growing Internet payments processor that, in my view, trades on a very reasonable valuation.
Despite the recession, Wirecard has continued expanding and that looks set to continue:
| Figures in €m | 2006 | 2007 | 2008 | 2009 | 2010
est |
|---|
| Revenue | 82 | 134 | 197 | 229 | 269 |
| % growth | | 63% | 47% | 16% | 17% |
| Net Income | 15 | 30 | 42 | 46 | 56.6 |
| % growth | | 200% | 40% | 10% | 23% |
It already services over 11,000 merchants. Moreover, as traditional businesses expand their online presence, the pressure for them to outsource their internet payment processing, to the likes of Wirecard, will only increase.
I also see Wirecard as a potential takeover target, not least because their strategic markets are Europe and Asia. E-commerce penetration in these regions is behind that of the US, so Wirecard has prospects for growth and would make an ideal strategic fit for a US company or an international bank looking to expand in this sector.
Furthermore, Wirecard trades on an attractive multiple, compared to the price that Visa paid to buy Wirecard's US rival Cybersource.
A potential takeover target?
In April, Cybersource was taken out at a price of $2bn or $26 a share. Here is a list of comparatives, based on a share price of €8 for Wirecard:
| Metric | Cybersource | Wirecard
to 2009 |
|---|
| Price to revenue | 7x | 3.5x |
| EV/EBITDA | 33X | 10.7x |
| Free cash flow yield | 4.8% | 7% |
| Revenue growth | 16% | 16% |
| EBITDA growth | 42% | 16% |
Furthermore, Wirecard has a rock solid balance sheet and analysts are forecasting that it will end 2010 with a quarter of its current market value in net cash.
Not without risks
All companies are subject to risk and, Wirecard is no different.
For example, early this year the share price was hit after a report appeared that suggested its banking subsidiary was suspected of money laundering. Following this report the company denounced these allegations:
"On account of a criminal investigation initiated against a private individual in the U.S., untrue and wholly unfounded allegations are being spread concerning business practices of the Wirecard Group. The private individual mentioned in the article was not and is not associated in any manner whatsoever with the Wirecard Group. Wirecard AG unequivocally and sharply repudiates any allegations giving rise to a suspicion of money laundering."
The shares rebounded very quickly after this statement.
UK e-commerce plays
Finally, if you are interested in UK plays on ecommerce or the internet growth in general, then it might be worth looking at data centre Telecity (LSE: TCY), domain name host company Group NBT (LSE: NBT) and UK listed internet payment processor Datacash (LSE: DATA).
More from Lee Samaha:
Lee holds a position in Wirecard.
