Paypoint have now released their interim results for the year ending 2020.
Revenues declined when compared to the first half of last year as a £387K growth in UK revenue was more than offset by a £1.5M decline in Romanian revenue and a £1.2M decrease in Irish revenue. The commission payable to retail agents declined by £1.1M, cost of mobile top ups decreased by £3M, depreciation fell by £375K and other cost of sales were down £453K to give a gross profit £2.5M higher. Share based payments were up £140K and other admin expenses grew by £3.7M which meant the operating profit was £1.4M lower. There was a modest increase in finance income and tax charges were down £307K to give a profit for the period of £19.5M, a decline of £1M year on year.
When compared to the end point of last year, total assets increased by £729K driven by a £2.1M increase in client cash, a £2.1M growth in accrued income, a £1.3M growth in current tax assets and a £1.1M increase in other intangible assets, partially offset by a £4.6M decline in items in the course of collection and a £1.6M decrease in trade receivables. Total liabilities also increased during the period as a £4.6M decrease in settlement payables, a £4.5M decline in current tax liabilities and a £2.2M fall in other payables was more than offset by an £18M increase in borrowings. The end result was a net tangible asset level of £12.4M, a decline of £10.3M over the past six months.
Before movements in working capital cash profits declined by £171K to £28.5M. There was a cash outflow from working capital and tax payments increased by £5.7M to give a net cash from operations of £17.5M. The group spent £2.5M on intangible assets and £1.6M on property, plant and equipment to give a free cash flow of £13.7M. This did not cover the £28.7M spent on dividends so they took out £18M of new loans to give a cash flow of £2.7M and a cash level of £40.5M at the period-end.
The rollout of Paypoint One has continued, expanding to 15,922 sites. The strong momentum seen means the group is set to exceed its original target of 15,800 sites by the end of March with the new target being 16,500 sites. This will mean they have largely retired their legacy terminal from the UK independent retail estate by this time. Service fee revenue grew by 31.8% and is now the largest net revenue contributor in the UK retail services business.
Going forward, whilst the financial performance of the group will be influenced by parcel volumes and continued resilience in UK bill payments over the second half, the progress of the business during the first half underpins the board’s confidence that there will be progression in profit for the year.
There was a focus on delivering cost efficiencies. In the first half they extended in house terminal repairs to PPoS and Paypoint One terminals. They have now secured £800K of annual savings from bringing terminal repairs in-house which has significantly improved the quality of repairs, reduced swap levels by 57% and enhanced customer service. Microsoft NAV was also installed as the new ERP system resulting in automation of reports and processes.
Card payment sites returned to growth and increased by 83 to 9,879. Transactions increased by 17% and net revenue was 8.3% higher at £4.2M. The increase in the number of transactions was offset by lower average transaction values arising from the growth in contactless payments. The average transaction value was £11.83 compared to £12.81 last year. Card service churn rates declined by 1.4ppts to 15.9%.
There was a 145 increase in ATM sites to 3,972. The group secured a new significant ATM client and rolled out 132 ATMs to its leisure centres. The average monthly transactions per site increased by 0.9% to 885 but overall transactions declined by 3.2%, less than the general market decline of 7.3%. Net revenue decreased by 7.2% to £6M, primarily due to the reduction in Link interchange fees but the group was the first to support Link’s new nationwide scheme which reinstitutes access to free to use cash machines in communities by installing an ATM in Oxfordshire in September.
Parcel volumes increased by 15% to 11.5 million, reflecting improvement in Yodel volumes and new partner volumes starting. Net revenue decreased by 15%, however, due to last year’s £500K Yodel impact. Excluding that, they were up 6%. During the period focus was on rolling out new partners into the networks with Ebay, DHL, Fedex and Amazon each having over 20% access to the network.
UK bill payment net revenue was 4% ahead at £22M. Transaction volume increased by 0.7% driven by a resilient performance in the energy sector. Client revenue mix continued to improve with average net revenue per transaction increasing by 3.2%. Multi Pay’s continued strong growth delivered a net revenue increase of 32% driven by processing 13.9 million transactions, an increase of 33.5%.
UK top-ups continue to be affected by market trends whereby direct debit pay monthly options displace prepay mobile. As expected top-up transactions declined by 12% which led to a £700K decline in net revenue. Offsetting this impact was the strong growth in eMoney which increased transactions by 17% and net revenue by 18.7%.
As announced in June, the group was unable to agree appropriate renewal terms with British Gas and will cease working with British Gas in December 2019. The impact on new revenue is expected to be £1.4M in 2020.
In Romania transactions grew by 1.7% despite challenging market conditions and net revenue increased by 6.2% to £7.3M with net revenue per transaction up 4.4% driven by an ongoing focus on margin improvement and the integration of Payzone. The group have developed a new T4 terminal with integrated card payment functionality in preparation for replacing the legacy terminals in the country.
At the current share price the shares are trading on a PE ratio of 15.8 which falls to 14.9 on the full year consensus forecast. After the dividend was maintained, the shares are yielding 8.5% which is predicted to remain the same for the full year. At the period-end the group had a net debt position of £12.3M compared to a net cash position of £600K at the same point of last year.
On the 12th August the group announced that non-executive director Rakesh Sharma purchased 2,038 shares at a value of £19K.
On the 6th December it was announced that founder Tim Watkin-Rees sold 498,354 shares at a value of over £4.8M.
On the 19th December the group announced that following a temporary leave of absence on medical grounds, CEO Patrick Headon has stepped down with immediate effect. The chairman Nick Wiles has agreed to continue in the role of executive chairman until a new CEO is appointed.
Overall then this has been another sluggish period for the group. Profits were down due to higher admin costs, net assets declined and the operating cash flow was somewhat lower with the free cash not covering the dividends. The group seems to be operating in rather low growth areas and even growth in Romania seems to have stalled. The forward PE of 14.9 and yield of 8.5% looks decent but that dividend yield is not sustainable and the recent large share sale by the founder is rather concerning.
On the 23rd January the group released a trading update covering Q3. The warmer weather over the period continues to affect energy transactions in the UIK bill payments and parcel volume growth remains towards the lower end of expectations as the four new parcel partners become established. Retail services are performing in line with expectations and should carry on growing well. Actions to deliver cost efficiencies and enhance customer service are ongoing.
Overall the board remains confident that there will be a progression in profit in 2020, albeit at a more modest rate than previously expected.
Group net revenue increased by £1.3M to £32.7M driven by an increase in service fees, through the ongoing roll out of Paypoint One and a robust performance in bill payments in the UK and Romania.