The Payments Council announced this month that for the first time, UK consumers are making more non-cash payments than cash ones.
This is a huge milestone, and, of course, it’s great news for the likes of Paypoint (LSE: PAY), Optimal Payments (LSE: OPAY) and Monitise (LSE: MONI).
Rapid growth
Paypoint is the UK’s leading payment collection network used mostly for the cash payment of bills and services. The company bridges the gap between cash and non-cash payments.
And thanks to the group’s unique position in the UK market, Paypoint’s earnings are growing rapidly.
For the year ended 31 March 2015, Paypoint’s pre-tax profit expanded by 7.7%, earnings per share rose by 9.1% and the number of transactions being carried out by the provider hit a record 813 million.
In addition, for the five years to 2015, Paypoint’s earnings per share have grown at a compound annual growth rate of 13% — that’s a rate of growth you’d be hard pressed to find elsewhere.
The company currently trades at a forward P/E of 14.5 and supports a dividend yield of 4.6%. There’s £44m of cash on the Paypoint’s balance sheet and no debt, so the group has plenty of room to increase its cash returns to shareholders.
With a gross profit margin of 48.1% and a net profit to cash conversion rate of around 110%, Paypoint is one of the best cash generators around.
Significant acquisition
After acquiring the Skrill European payment brand earlier this month, Optimal Payments has set itself up to become a leader in the cashless payments space.
City analysts expect Optimal’s pre-tax profit to jump by 14% this year. However, due to the company’s higher share count, following the rights issue used to fund the Skill deal, earnings per share are only expected to increase by 4%.
Nonetheless, earnings per share are set to jump by an impressive 19% during 2016 as synergies from the Skill deal flow through.
Based current City figures the company is trading at a 2015 P/E of 17 and 2016 P/E of 13.4.
Further, forecasts suggest that Optimal is trading at a 2016 PEG ratio of 0.7. A PEG ratio below one signifies growth at a reasonable price.
Trouble child
Monitise should be the best play on the mobile, cashless payments market.
The company’s strong relationships with a number of key banks, along with other global businesses should, in the perfect world, give it an edge over peers.
However, Monitise has failed to capitalise on this opportunity.
Still, there is value to be found in Monitise’s partnerships and agreements. This is exactly why billionaire Leon Cooperman has not lost faith in the company.
Leon Cooperman and his hedge fund, Omega Advisors, own a large percentage of Monitise. They believe that one day the company will be a takeover target, as banks look to create their own cashless mobile payment networks.
Monitise is one of the few enterprises that has the technology and connections already in place for such a network. As a result, it becomes cheaper to buy rather than build.
