Where’s The Value In Optimal Payments Plc, Monitise Plc & Paypoint plc?

Walt Disney once said that he had been up against tough competition all his life and he would have not known how to get along without it — but that’s Walt Disney. 

In The News

Did anybody notice the news about Apple Pay UK yesterday

And how about reports covering Facebook‘s messenger mobile payments in the US a couple of days ago?

As the world of mobile-based payments buzzes with terrific growth projection into 2020, it’s easy to argue against Optimal Payments (LSE: OPAY), Monitise (LSE: MONI) and Paypoint (LSE: PAY), while backing the biggest, cash-rich companies around the world instead. 

Optimal Payments: A Compelling Buy? 

Of the three, I consider Optimal Payments to be the most appealing investment proposition, in spite of its high trading multiples.

It reported a trading update today that pushed up its stock by 14%, but investors are too optimistic about Optimal Payments, in my view. 

In fact, at a time when the valuation of several tech companies might be out of whack with reality and talk of a tech bubble mounts, there remains doubts that Optimal Payments will be able to buck the trend of declining valuations in the tech world if a worst-case scenario plays out.

Moreover, at its current level of 248p a share, its implied trading multiple based on forward net earnings stands at 23x, which doesn’t make it a compelling buy. 

Paypoint: A Yield Play? 

Paypoint has done an impressive job in recent years, and is cheaper than Optimal Payments based on most forward trading metrics, but its growth prospect are less enticing, although it pays a dividend, with a yield projected at 4.6% (which is covered by core operating earnings).

Hefty margins are one I element I like, yet a steeper growth rate for growth is required to command a premium to a forward valuation that currently stands at about 16x based on its net earnings. 

Both Paypoint and Optimal Payments have solid balance sheets, but the former should raise more debt at a decent rate to boost returns. That’s hardly an option for Monitise, the weakest of the three, however, which has not been on my wish list for a long time.

Monitise: Not Much To Report

Recent news according to which it Monitise launch a joint venture with Santander did little to convince me that the its stock is worth the risk at 10.6p a share, where it currently trades. Its cash position is precarious, while its equity valuation implies a forward trading multiples above 2x revenues, but other financial metrics provide little help. 

In fact, hefty net losses and negative operating cash flow and are set to persist for a few quarters even under a best-case scenario, unless some material news about money-spinning ventures emerge sooner rather than later. With regard to its JV with Santander, Monitise said that it “will benefit from a multi-million pound upfront licence fee with further ongoing revenues expected to be generated by the initiative.“.

At their current and forward valuations, multi-billion dollar businesses, which have plenty of cash to spend, are those worth investing in the space, in my view.

That said, it's clear that Paypoint and Optimal Payments belong to a different league compared to Monitise, but they also carry much more risk than a £300m gem that has recently been spotted by our Motley Fool team, I'd argue. 

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