Optimal Payments Plc’s Profits Jump, But Are Paypoint plc Or Monitise Plc Better Buys?

Optimal Payments Plc (LON: OPAY) is surging ahead but could Paypoint plc (LON: PAY) or Monitise Plc (LON: MONI) be better picks?

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Optimal Payments (LSE: OPAY) announced its results for the six months ended 30 June 2015 today, reporting strong growth across the business as its share price rose by almost 8% in early trade. 

Optimal’s sales during the first half increased 40.2% to $223.0m. NETELLER Stored Value and NETBANX Straight Through Processing business rose 20.1% and 47.4% respectively during the period.

Adjusted earnings before interest, tax, depreciation and amortisation jumped by 27.9% to $49.9m, and adjusted profit before tax rose by 18.7% to $37.3m. Adjusted diluted earnings per share increased 11.4% to $0.12. 

However, statutory group profit after tax fell 91% to $2.4m, due to a doubling of depreciation and amortisation costs as well as a $12.4m charge relating to the acquisition of Skrill. These results do not include any contribution from the Skrill acquisition. The deal was completed after the period end. 

Excluding cash raised through Optimal’s rights issue, group cash at period end amounted to $113.3m. 

Strong results 

Optimal’s first half results showcased the company’s existing strengths, but there is more to come. Indeed, now that Optimal has completed the acquisition of Skrill, the company should see sales jump during the second half of the year. What’s more, as sales push higher, costs should fall as merger synergies flow through, and one-off costs related to the acquisition disappear. 

City analysts expect Optimal’s earnings per share to fall by 6% this year, due to acquisition costs and the higher share count — a result of the rights issue used to fund the Skrill deal. Nevertheless, analysts expect Optimal’s earnings per share to jump 18% during 2016 after the Skill integration.

Based on current City figures Optimal currently trades at a forward P/E of 17.8 and 2016 P/E of 15.1. And according to these numbers, Optimal trades at a PEG ratio of 0.9 for 2016, indicating that the company’s shares offer growth at a reasonable price. 

A better pick? 

At first glance, Optimal looks expensive, and the company’s close peer, Paypoint (LSE: PAY) looks to be the better pick. 

Indeed, Paypoint currently trades at a forward P/E of 16.4. Still, the company’s earnings are only expected to grow at a steady 6% to 8% per annum for the next few years. That said, Paypoint currently supports a dividend yield of 4.5%, eclipsing Optimal’s token dividend yield of 0.5%.  

So, if you’re an income investor, Paypoint could be the better pick although if you’re looking for growth, Optimal ticks all the boxes. 

Not attractive

Unfortunately, when compared to Paypoint and Optimal, Monitise (LSE: MONI) looks like the runt of the litter.

While Monitise has its attractive qualities, the company is still burning through cash at an alarming rate. It’s questionable if the company can survive much longer without having to conduct yet another fundraising. 

For example, during the first six months of the year Monitise burned through roughly £40m in cash, according to the company’s trading statements. On the other hand, Optimal reported a free cash flow of $29.9m for the first half of 2015, while Paypoint generated a free cash flow of around £35m during 2014. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise and PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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