Optimal Payments (LSE: OPAY) is falling again today, taking the company’s decline over the past week to a staggering 27%. Indeed, a perfect storm of bad news has engulfed the company over the past few months and it seems as if there’s nothing management can do to stop shareholders deserting the company.
That being said, in many ways it’s the company’s management that has been responsible for the deluge of bad news. The problems stem from share dealings carried out by the group’s CEO during April of this year. Similar to the deal Quindell had in place, Optimal’s CEO pledged 38% of his entire shareholding with Equity First Holdings for £4m in cash. This was around 30% below the market value of the shares.
As it turns out, this deal was not a simple loan in return for shares. The terms of the deal meant that Optimal’s CEO essentially disposed of his shareholding at a 30% discount to market value. He has pledged to buy the shares back, although if they fall to a certain level, he’s under no commitment to repurchase. Essentially, this means that Optimal’s CEO dumped nearly 40% of his shareholding at the beginning of this year.
Perhaps the market would have forgiven management if they explained the deal straight away but it took Optimal several months to clarify what had actually occurred.
And it seems as if the market no longer trusts Optimal’s management. Are they withholding any more information from shareholders?
Since the EFH deal was revealed, Optimal’s shares have declined by more than 21%, the company has lost, its CFO (he was quickly replaced) and it was revealed today that the group’s fourth largest investor, Kames Capital, had begun to sell down its stake in the company. Today’s announcement shows that Kames reduced its interest from just under 6% of Optimal to around 4.5%.
Still, Optimal’s underlying business performance remains robust according to management. In a trading statement issued yesterday the group announced that:
“…trading in the year to date has been strong and expects Optimal Payments’ financial results for 2014 to be at least in line with market expectations…”
The City currently expects Optimal to report earnings per share of 24.4p this year and a pre-tax profit of £45.2m on revenue of £232m.
Based on these figures Optimal is currently trading at a forward P/E of around 12 — an attractive valuation.
What’s more, Optimal’s earnings are expected to expand a further 22% next year, which implies that the company is trading at a PEG ratio of 0.5, offering growth at a reasonable price.
The bottom line
So, on fundamentals, Optimal looks to be a great pick. However, it remains to be seen if the company’s management can be trusted. It will take time to rebuild confidence.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.