Still soaring

Budget flyer easyJet (LSE: EZJ) has endured a torrid time in recent weeks, the stock losing 11% of its value since the start of the year. But the business was recently dealing 5% higher in Friday trade after releasing a fresh batch of bubbly passenger data.

The Luton airline advised that passenger numbers advanced 9.8% in February, to 4.93m, underlining the steady acceleration in traveller totals in recent months. On a 12-month rolling basis passenger demand advanced 7.5% through February.

With sales of budget tickets expected to keep on rising, and easyJet boosting the number of routes it operates to meet this demand, I reckon earnings at the firm should keep on flying higher.

This view is shared by the City, and the company is expected to enjoy a 7% earnings rise in the year to September 2016 alone, resulting in an exceptional P/E rating of 10 times. And a projected 59.7p per share dividend — yielding a substantial 4% — should attract the attention of savvy income hunters.

Plumbing new depths

Oil services play SeaEnergy (LSE: SEA) has also dominated the headlines in end-of-week trade, with the release of a bearish trading update sending its share value plunging 52% lower from Thursday’s close.

SeaEnergy reported that “trading conditions within the oil and gas industry have deteriorated further since the start of the year“, meaning that many projects due in the early part of 2016 have been booted to later in the year or possibly beyond.

Furthermore, the business advised that it is still “generating losses at current activity levels” despite rampant cost-cutting and divestments. Consequently SeaEnergy plans to assets like its ‘R2S Visual Asset Management’ division to continue trading beyond May without the need for additional funding.

Considering the poor state of SeaEnergy’s balance sheet, not to mention the remoteness of a sudden upturn in the oil and gas market, I believe shrewd stock pickers should resist the urge to go bargain hunting at the struggling services provider.

A tech terror

Payment processing specialists Monitise (LSE: MONI) has seen its share price gallop 36% higher in Friday trade, taking total gains since the start of March to 55%.  Even so, that still leaves it down 85% down since this time last year.

Monitise announced today that it was in early-stage discussions to hive off its Markco Media division. The business snapped up the operator of sites such as MyVoucherCodes.co.uk for a potential £55m just a couple of years ago.

Still, the news comes as relief to investors following the tech play disastrous trading update last month. Monitise advised that revenues slumped by a 21% between July and December, to £33.4m, while the impact of massive write-downs caused pre-tax operating losses to quadruple to £211.6m.

But the City is not expecting Monitise to turn a profit in the years to June 2016 or 2017, a huge disappointment for a firm with hot growth prospects just a few years ago.

With the business failing in its efforts to switch to a cloud-based model, and industry heavyweights like Apple and Google increasing their footprint in the mobile payments space, I do not expect things to improve at Monitise any time soon.

The post Should You Buy easyJet plc, Seaenergy PLC & Monitise Plc Today? appeared first on The Twelfth Magpie.

More reading

• Could now be the time to buy great UK shares at bargain prices?
• easyJet shares are up 40% in a month. Here’s why
• Up close to 50% in a month, what’s next for the easyJet share price?
• The easyJet share price is up 49% in a month. What on earth’s going on?
• At £5, could the easyJet share price still be a long-term bargain?

Royston Wild 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.

The post Should You Buy Worldpay Group plc For 2016? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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

Today, Monitise announced that chief financial officer Brad Petzer is stepping down and will resign from the board with immediate effect, although he will remain with the company until a successor has been appointed. Mr Petzer’s decision to leave Monitise comes only a few months after former CEO Elizabeth Buse decided to leave the company after the group reported full-year pre-tax losses of £227.4m for 2015, up from £63.4m a year earlier. 

Elizabeth Buse took control of Monitise back in March after the company’s founder and co-chief executive Alastair Lukies left his position following a strategic review. Elizabeth Buse was supposed to be Monitise’s saviour as she came to the company from Visa Europe, the European arm of global payments giant Visa, and had a wealth of experience in running payment processors. However, Ms Buse’s decision to leave Monitise, and return to the US for personal reasons, after only six months on the job raised plenty of red flags. 

Monitise’s management turmoil could be a sign of a company in distress. CEOs don’t usually flee positions after only six months on the job unless the company’s prospects are looking increasingly bleak. Monitise hasn’t provided any trading updates since its full-year 2015 results issued at the beginning of September, so it’s unclear if the company’s trading has improved or deteriorated further. But unless Monitise’s trading improves significantly over the next six months, I think the company is going to struggle to survive. Indeed, City forecasts suggest that the company will report operating losses of £61m for 2016, £54m for 2017 and £54m for 2018.

That said, 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. EBITDA is often used as a proxy to indicate cash flow. And if Monitise does move to EBITDA profitability next year, the company’s rate of cash burn could slow, which would give management more time to instigate a turnaround. Nonetheless, it’s likely that Monitise’s seemingly endless stream of management changes will impact the company’s growth and there’s a chance it could take longer to hit EBITDA profitability than currently predicted.

So overall, while today’s news that Monitise’s CFO is leaving the company seems like bad news to me — Monitise needs a committed management team to return to growth, and the constant changes at the top don’t signal management’s commitment to the cause — the market’s positive reaction this meaning could mean that it’s in favour of “clearing the decks”…

The post Monitise Plc CFO To Step Down appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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.

WASHINGTON, DC — Shares of online payments start-up Square (NASDAQ: SQBK) began trading in the secondary market this morning, vaulting as much as 64% above the $9 at which they were priced in the primary market.

The “pop” in Square’s stock price suggests the shares were mispriced by the initial public offering (IPO) lead managers (Goldman Sachs, Morgan Stanley, and JPMorgan). It appears the banks may have been excessively cautious in setting the price 25% below the midpoint of the $11 to $13 initial pricing range, such that Square left money on the table.

As the company is a high-profile Silicon Valley start-up, Square’s IPO is being heavily scrutinized as an indication of the public market prospects of other so-called “unicorns” (start-up companies that have achieved a valuation exceeding $1 billion in private market financings).

The number of unicorns has ballooned in the past few years, as growth companies are able to access ample funding without having to go public. According to data from The Wall Street Journal and Dow Jones VentureSource, there are now 128 worldwide, roughly two-thirds of which (84) are U.S. companies.

There is a legitimate concern that the availability of such funding and the drive to find the next Facebook has pushed valuations to unsustainable levels. Sitting on top of the unicorn ranking, Uber was valued at a staggering $51 billion in August.

An article published in the Harvard Business Review this week and co-authored by Clayton Christensen asserts that “Uber’s financial and strategic achievements do not qualify the company as genuinely disruptive.” Pr. Christensen pioneered the notion of “disruptive innovation.”

But it’s another concept, also developed by a Harvard Business School professor, that is arguably more important than any other for a business-focused investor: competitive advantage. Try as I may, I cannot find a source of durable competitive advantage for Square.

If I’m right, and if Square is unable to build one, it’s a grave problem for investors: Only companies that possess that advantage will earn above-normal returns on behalf of their owners over long periods.

Make no mistake about it, Square’s sector is highly competitive. In August, Business Insider counted 24 unicorns in financial technology, five of which could be considered direct competitors to Square with regard to payment card readers, online payments processing, or mobile payments. Those include payments processor Stripe, which is headquartered in San Francisco and was valued at $5 billion in July.

This columnist believes that, in time, the offering banks’ caution is likely to prove more consistent with Square’s actual value than the pop the shares are enjoying today. Even with the pop, the stock remains significantly below the $15.66 per share valuation in its last pre-IPO funding rounding. Justifying that valuation now looks like a case of trying to square the circle.

The post Square 1 Financial Inc’s IPO: Investors Are Trying to Square the Circle appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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

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.

The post Will Monitise Plc Ever Recover To 10p, Or Should You Buy Worldpay Group PLC Instead? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

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.

Before we sort the wheat from the chaff, let’s outline what to look for when judging a payment business. First, bricks-and-mortar payment services are a good business. After all, we are all using less cash and more cards. However, processing e-commerce is better: the market is growing fast (at least 10% p.a.), it is fragmented, and penetration is still low (so the trend will continue). Second, though we hear that ‘mobile payments’ are the future (and it is true by all accounts), definition of ‘mobile payments’  is nebulous at best: ApplePay is a debit card in your phone, while Square allows you to use an iPad as a store checkout. Both solutions count as ‘mobile payments’, but are very different. Third, value-adding analytics are becoming more important. Customers not only want a 100% robust payment solution, but also an ability to analyse customer data and predict behaviour. Finally, if you are going to stick to the more mature bricks-and-mortar business, then scale is crucial for success. 

Worldpay Group

Worldpay Group is solid in all areas of the payment world. In particular, it has a fantastic bricks-and-mortar platform and an e-commerce offering. In particular, it is a market leader in the UK and has a strong ‘omni-channel’ offering in the US. It may be lagging some upstarts in mobile or data analytics, but offers more than ‘hygiene level’ services in both (especially in the US). Also, services such as ApplePay will actually use its bricks-and-mortar system, and by accelerating substitution away from cash, ApplePay could be a positive. However, as I mentioned before, Worldpay is expensive. A trailing 2014 EV/EBITDA of more than 18x cannot justify anything but sustained ‘high-teens’ growth rate (at the EBITDA level). Although it is possible, past financials only hint at such an outcome and nothing more.

Paysafe Group

Full disclosure: this is my favourite of the pack, despite the recent news of a breach by hackers. Paysafe Group, which used to be called Optimal Payments, is solely involved in online commerce. Its focus on the gambling sector provides a sense of security: online gambling is growing (despite facing some regulatory uncertainty) and it allows the firm to develop know-how and scale so it can be competitive in its e-commerce offering outside of gambling. By the way, PayPal does not allow use of its wallet for online games.

Recently it become apparent that, due to a hack, data was stolen form the company’s NETELLER and Moneybookers divisions. It may be true, and the hack may have been damaging to Paysafe’s clients. There are few points to consider, however. 1) NETELLER and Moneybookers were competitors at the time of the alleged hack, and were both leading wallet providers for online games. If they were hacked, it is an industry problem, not a company-specific one. 2) Consequently, given the combination of the two leaders, there is actually very little competition for these wallets. Other providers are probably less secure. 3) Future for Paysafe lies mostly in e-commerce payments and expanding of the Paysafecard product. Even if the the hack did damage the gaming wallet business, the group is likely to enjoy solid growth going forward. The full recovery in the share price since the hack confirms this view. 

Hence, despite its troubles and its lagging in offering of mobile and value-added products, the group’s valuation at about 12.3x 2016E EV/EBITDA  is very attractive. 

SafeCharge International       

Just like Paysafe, SafeCharge provides an online gateway for payment processing. However, it is leading in the associated value-added services. For instance, its checkout page can minimise transaction abandon rates by learning from customer behaviour. Consequently, the company earns above-industry revenues per customer, while having high customer satisfaction. It had a zero customer churn in 2014. Although its 2016E EV/EBITDA of 14.7x looks rich, it is also enjoying growth of about 25%. I would also say it would be a good buy.

The post Taking Stock Of The UK Payments Sector: Worldpay Group PLC, Paysafe Group plc & SafeCharge International Group Ltd appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Patrick Radecki has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.