News from CIS Portfolio Stock...

Paypoint (PAY) - the £600m+ market cap company who have reported Interim results today. This one was purchased for the portfolio back in July this year and has been flat in price terms since then, although the broader market has been down about 4% since then. So lets see how today's figure measure up and if Mr. Market has seen fit to offer a buying opportunity.

Their net revenues were up by a modest 2.4% but disappointingly the operating profits and earnings were both down by around 5% which compares with full year growth forecasts of 5 to 6%. In the headlines they did though say this was as expected as they invested in mobile and saw lower revenues in on line payments, the costs incurred in the sales process, the reorganisation costs incurred in the first half and the increase in the tax rate.
There was also a strange comment about the weather being warmer than expected but thinking about this I guess it hits the volume of pre paid gas and electricity going through their terminals.

However the dividend was up by a useful 14.5% although again this seems shy of full year forecast growth of 20% or so. On this they said this reflected their confidence in the business and its long term prospects and they are suggesting double digit growth for the full year. This suggests that growth may be more like 10 to 15% rather than the 20% currently forecast by analysts.

The other reason for thinking the dividend growth might be a bit lower was another disappointing aspect of this announcement. This was the fact that they have not yet completed the disposal of the mobile and on line business, although they say they expect to complete it in the second half. Added to that they have also now decided to write off the entire goodwill on this business with an impairment charge of £18.2 million, as offers have not met their expectations. As this was previously held in the books at around £55m it seems they may only now get say £30 to £35m, assuming they manage to sell it, thus reducing the scope for a special dividend on the back of it which may have been factored into the 20% growth forecasts mentioned above.

Despite this they still have a strong balance sheet with £46.1m of cash and £45m of credit facilities available. In terms of how they might utilize this they talk about new tablet based retail terminal being trialled, reorganising to improve cost efficiency and provide better strategic focus and an active review of new countries with retail network potential.

Aside from this they also mention their Collect+ parcel operation which is a joint venture with Yodel. In common with others in this industry this seem to be under pressure as they say that discussions continue with Yodel on this, with reduced profitability from cost increases.. This was as there were proposed increases in charges put forward by Yodel.  A portion of these charges have been allowed pending the outcome of these discussions, which has caused the adverse impact on profitability in Collect+. They expect to be able to report on the conclusion of these discussions by the time of the full year results but it meant that this period this business moved to a loss of £797,000.

Summary & Conclusion
Overall a slightly messy and disappointing looking update from Paypoint today, although it seems odd to be saying that when they have increased the dividend by 15%. The market seems to agree but I think it may have over reacted a bit with the shares being off by around 10% first thing. This seems strange since the management say the figures are in line with their expectations and that they expect to make further progress across the business, with trading since 30 September in line with expectations. In addition the £18m write down only represent about 3% of the enterprise value.

Consequently the shares have fallen back this morning to where they were trading in the summer prior to the markets positive response to their full year numbers. This has closed the gap on the chart that opened up at that time. Assuming no changes to the underlying earnings forecast and factoring in say a 10% full year increase in the dividend to say 42.4p would leave the shares at 890p on around 14.6x with a  decent 4.76% yield. These could also improve if they do manage to sell the on line business in h2 as expected and if they decide to pay a special.

Thus, if you have held off buying this one so far then I think today could be a buying opportunity as this one seems to move in fits and starts and the market seems to have had a fit today - unless I'm missing something. But as this one still scores 92 on the CIS and the rating looks OK with a decent yield I wouldn't put you off but as ever do your own research before making any investment as I offer no guarantees.