MENU

Will Monitise Plc Ever Recover To 10p, Or Should You Buy Worldpay Group PLC Instead?

Ever since Monitise (LSE: MONI) warned alongside its full-year 2015 annual results that it was going to miss forecasts once again next year, and the company’s experienced CEO, Elizabeth Buse, was leaving after only a few months on the job, there’s been little in the way of news flow from the company. 

The most important piece of news came at the end of October. Monitise announced that it had agreed a deal with Spanish telecommunications company Telefónica SA’s Telefónica Digital to explore potential projects. However, the company noted that this agreement would not affect its guidance for the current financial year.

The company still believes that by cutting costs, it can reach EBITDA (earnings excluding exceptional items, depreciation, amortisation, impairments and share-based payment charges) profitability next year, although the group will continue to report statutory losses for the foreseeable future. Current forecasts suggest the company will report an operating loss of £61m for 2016, £54m for 2017 and £54m for 2018.

As part of Monitise’s drive to cut costs the company has decided to shrink its board, with two non-executive directors both set to leave. 

Struggling 

It’s no secret that Monitise is struggling to survive. The mobile money company has consistently missed forecasts since it hit the market back in 2007 and the City has lost patience with the company as it struggles for direction. 

On the other hand, one of Monitise’s competitors, Worldpay (LSE: WPG), is surging ahead, and the City seems to be extremely excited about the company’s prospects. 

Indeed, Worldpay’s initial public offering was the biggest the London market has seen this year, raising £948m and valuing the business at £4.8bn. Worldpay is already a leader in global payments, and the company’s valuation has nearly tripled since 2010. Private equity groups Advent and Bain Capital bought Worldpay from Royal Bank of Scotland in 2010 for £1.7bn. 

Earlier this month Worldpay announced that it would be receiving a windfall from Visa Inc’s acquisition of Visa Europe for €16.5bn in cash and shares. Worldpay owns just under 10% of Visa Europe. Worldpay’s portion of the consideration will total €1.25 billion, including an upfront cash payment of €592m and a further €374m in Visa shares. Worldpay will get a further €283m in deferred compensation based on Visa Europe hitting certain earnings targets.

Last year Worldpay recorded sales of £3.6bn and EBITDA of £375m. Unfortunately, these figures suggest that Worldpay is one of the most expensive companies in the payments sector. The company is currently trading at an enterprise value to EBITDA multiple of more than 18. Even MasterCard and Visa are cheaper bets. These two payment processing behemoths currently trade at EV/EBITDA multiples of 17.9 and 14 respectively. 

Back to 10p?

So, can Monitise head back to 10p, or should you give up on the company and buy Worldpay instead?

Well, as Monitise is set to report losses of £169m during the next three years, it’s almost impossible to justify a high valuation for the company. However, Worldpay’s eye-watering valuation is hardly attractive either. With this being the case, I’m looking elsewhere for deals.

 

One company that's recently attracted my attention is revealed in this free report

Our analysts believe that the business in question is one of the market's "top small caps" and could have a potential upside of 45%! Moreover, the company in question has a substantial cash balance, proven advantage and is supported by some of the biggest players in its industry.

If you'd like to find out more, download the free report today -- but hurry, it's only available for a limited time. 

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