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.

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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.

In this article I’ll ask whether Optimal Payments (LSE: OPAY), Tullow Oil (LSE: TLW) or International Consolidated Airlines Group (LSE: IAG) could deliver the kind of big gains required to help fund an early retirement.

Optimal Payments

Sales at online payment processor Optimal Payments have risen by an average of 42% every year since 2009. The firm’s shares are worth 500% more than five years ago. However, Optimal’s stock market performance has become more uncertain this year.

Personally, I think it’s probably too late to hope for more multi-bagging gains from Optimal. Although the firm has a good record of generating free cash flow, the recent acquisition of Skrill has left Optimal with €500m of debt. That’s more than five times this year’s forecast post-tax profits of $93m.

I also suspect that Optimal’s profit margins will come under increased pressure from peers such as Apple Pay over the next few years.

Optimal shares currently trade on a 2015 forecast P/E of 18, falling to 13 in 2016. That’s not cheap enough to be a buy, in my view.

International Consolidated Airlines Group

British Airways owner IAG has had a storming year. The airline group’s shares are 42% higher than 12 months ago. Sales for the first nine months of the year are 13% higher than in 2014.

The shares are still tempting, too. IAG stock currently trades on a 2015 forecast P/E of about 11. The latest forecasts suggest earnings per share could rise by a further 28% in 2016, giving a 2016 forecast P/E of just 9.

Does this make IAG a strong buy? Perhaps. Ownership of three major European airlines means that IAG benefits from economies of scale and good access to attractive routes. Current low oil prices should mean that the group can lock in low fuel prices for several more years.

On the other hand, the airline business is cyclical. IAG’s gearing is now 49% and adjusted net debt is €7.1bn. While growth appears to be strong at the moment, any downturn could put severe pressure on IAG’s profits.

IAG could well deliver more gains for investors, but at nearly 600p I don’t think the shares are an outright bargain.

Tullow Oil

Tullow’s 52% plunge over the past year has seen the oil exploration and production firm ejected from the FTSE 100. Tullow shares are now worth 85% less than when they peaked at 1,566p in February 2012.

Does this make Tullow cheap? Not necessarily. Tullow’s valuation needs to be looked at in the context of its sizeable debt burden. At the end of June, Tullow’s net debt had risen to $3.6bn (£2.3bn). That’s significantly more than the firm’s £1.8bn market cap.

Tullow won’t run out of cash. The group recently renewed its credit facilities and has $2.1bn in cash and undrawn credit facilities. The problem is that low oil prices mean this debt, which is being used to fund the TEN project, will take longer to repay than expected.

I’m not convinced that there will be much spare cash flow available to return to shareholders for the next few years. Tullow remains a risky buy, in my view.

The post Could Optimal Payments Plc, Tullow Oil plc & International Consolidated Airlns Grp SA Help You Retire Early? appeared first on The Twelfth Magpie.

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

Optimal Payments shares have been a bit erratic of late, but were up 500% over the past five years, to 348p by the close of business on Wednesday. But then the price crashed by 20% in early trading on Thursday morning, as the firm admitted it had suffered breaches in its customer data security.

The immediate price fall seems to have been something of an over-reaction, and as it has become clear that these breaches took place around 2011 to 2012 or earlier, the price recovered to stand 12% down at 306p approaching midday. But that’s still a significant dent, and with the news breaking so soon after the cyber attack at TalkTalk Telecom, users of the system and shareholders of Optimal Payments are understandably worried, especially at a time when Apple Pay is taking the market by storm.

Repeated breaches

The breaches reported by Optimal, which have resulted in “a small amount of customers’ personal data” now being in the public domain, with allegations suggesting that the same has happened to “a more material amount of customers’ personal data“, apparently took place at the company’s NETELLER subsidiary in or before 2011, and at Moneybookers Limited (which is now owned by Optimal via a series of acquisitions) in or before 2012.

Both had previously been targets of cyber attacks in 2009 and 2010, although the company assured us that no financial losses were incurred. The latest breaches don’t sound likely to lead to direct financial loss either, with Reuters reporting that it is only names and email address of customers that have been accessed, and which are now available for sale on the so-called dark web.

But even if no money is lost, the apparent fact that companies can suffer repeated breaches of security is a serious concern, and it’s one that could kill a smaller operator’s prospects.

Is Optimal Payments a company to invest in now? Well, I wouldn’t have bought it even before this news, because it’s in a heavily competitive market, and it doesn’t have the barriers to entry needed to differentiate it from the likes of Apple Pay. (As an aside, I think one payments processor that has built itself a barrier is PayPoint, with its network of terminals in shops for handling the payment of bills.)

Bargepole

The mobile payments market is set to soar in turnover in the next few years, and that is reflected in the growth pricing attached to shares in the candidates for success. But a couple of things conspire to make the smaller operators unattractive to me.

Firstly, I’m always minded of Warren Buffett’s observation that it is rarely the first movers who make it big in a new technological business. And in the payments business, I reckon the advantages lie very much with the big players who have the muscle to expand rapidly — and to invest in industry-leading cyber security.

The post Why Did Optimal Payments Plc Crash 20% Today? appeared first on The Twelfth Magpie.

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

What’s more, even though the size of the US mobile-based payment industry is set to nearly triple over the next four years, at the peak mobile payments will only total around 1% of the $16trn US consumer payments market.

Monitise (LSE: MONI), Paypoint (LSE: PAY) and Optimal Payments (LSE: OPAY) all stand to benefit from the growth of the mobile payments market. The question is, which one should you buy? 

Red flags 

Over the past five years, Monitise has shown to me time and again that it cannot be trusted. When it 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, I lost confidence in the company. 

Moreover, City analysts believe that Monitise will continue to report hefty 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.

Safe bet 

Compared to Monitise, Paypoint looks to be a relatively safe bet. The company has grown steadily over the past five years. Revenue has expanded at a rate of 2.1% per annum since 2010, and margin improvements have helped push net profit higher by 12.1% per annum over the same period. Earnings per share have expanded at a rate of 11.9% per annum since 2010. 

And Paypoint’s steady earnings growth has translated into impressive returns for investors over the years. Since October 2010, Paypoint’s shares have returned 226% excluding dividends, outperforming the FTSE 250 by 169%. Paypoint currently supports a yield of 4.5%. Including dividends, the company’s shares have returned 30.8% per annum since 2010. 

Unfortunately, Paypoint’s steady growth and lucrative returns don’t come cheap. The company’s shares currently trade at a forward P/E of 15.9, but if you factor in the group’s cash position of £40m and return on equity of 35.7%, it’s easy to see that Paypoint’s shares deserve their premium valuation. 

The same can’t be said for Optimal. Granted, the company’s growth has been explosive over the past few years. Revenue has increased at a compound annual growth rate of 42.5% since 2009, net profit has exploded over 4,700% since 2012, and shareholder equity has risen five-fold since 2011. However, Optimal’s return on equity is a lowly 6.2%, and the company doesn’t pay a dividend.

Then there’s the different nature of Optimal and Paypoint’s business to consider. 

Specifically, Paypoint is the UK’s leading payment collection network used mostly for the cash payment of bills and services. The company bridges the gap between cash and non-cash payments, which means that Paypoint is uniquely positioned in the market. Optimal, on the other hand, is focused on the extremely competitive online payments space.

With new competitors like Apple Pay springing up almost every day, it’s difficult to assess how long Optimal can continue on its current growth trajectory. And with that in mind, Optimal’s premium valuation of 15.4 times forward earnings looks rich. 

The bottom line 

So overall, if you’re looking to profit from the growth of the mobile payments market, Paypoint looks to me to be the best choice. 

The post Why I’d Avoid Optimal Payments Plc & Monitise Plc But Buy Paypoint plc appeared first on The Twelfth Magpie.

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

Proactis Holdings

Shares in software company Proactis rose by as much as 8% to 102p today, after a strong set of results and news of a new deal with Screwfix.

Proactis, which has a market cap of around £35m, provides software to help control corporate spending by managing purchasing, invoicing and supplier relationships.

Last year’s sales were boosted by acquisitions, and revenue rose by 69% to £17.2m, while underlying organic sales growth was 12%.

Unlike many small-cap tech stocks, Proactis is profitable and even pays a dividend. Adjusted earnings per share rose by 126% to 6.1p last year, while the firm’s final dividend has risen by 9% to 1.2p, giving a yield of around 1.2%.

I was impressed to see that £14.3m (83%) of the firm’s revenue is now recurring. This suggests that most of the firm’s customers are on rolling subscriptions, which I like. A reported operating margin of 9.3% is also encouraging, while the firm’s cash and debt levels remain reasonable, with net cash of £1.5m.

Small companies like this can be expensive to buy and sell, due to the big spread between bid and offer prices. However, for long-term investors, I believe Proactis could be worth a closer look.

Jubilee Platinum

Shares in Jubilee have doubled over the last three months thanks to the sale of the firm’s Middelburg platinum smelter and power operations.

On 9 October, Jubilee received £5.4m cash for the sale of the Middelburg operations. This, along with cash from a placing and some new debt, should enable Jubilee to fund the development of its two platinum surface mining projects.

As things stand, recent shareholders are sitting on a decent profit, but I’m not sure the shares are still a buy.

Jubilee says that the firm’s surface mining and tailings projects offer “significant earnings potential”. But there are no broker forecasts for the firm. A presentation published in February suggesting that the two sites could generate operating cash flow of $14m per year was based on a platinum price of $1,250 per ounce. That’s 27% higher than today’s price of $980 per ounce.

In my view, it might be wise to wait for more detail on the economics and funding of the projects before deciding whether to invest.

Optimal Payments

Online payment processing company Optimal made waves in March when it agreed a $1.2bn deal to acquire Skrill, another, larger, digital payment firm.

The Skrill acquisition completed in August and Optimal shares have risen by 40% since July. The group’s first-half results showed that sales rose by 40% to $223m, before any contribution from Skrill.

Brokers are forecasting full-year sales, including a contribution from Skrill, of $582m, with a net profit of $93m. This puts the shares on a 2015 forecast P/E of 20, falling to about 15 in 2016, when net profit is expected to rise to $97.5m.

In my view, Optimal’s current valuation already reflects a fair amount of growth. I’m not sure now is the best time to buy — it might be worth waiting until we have a little more information about the combined firm’s trading.

The post Is Now The Time To Buy Optimal Payments Plc, Jubilee Platinum PLC And Proactis Holdings Plc? appeared first on The Twelfth Magpie.

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Roland Head 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.

However, when the company 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, I lost all my confidence in Monitise. 

Losing confidence 

For full-year 2015, Monitise’s revenue declined 6% to £89.7m. The group’s loss before exceptional items, depreciation, amortisation, impairments and share-based payment charges (EBITDA) totalled £41.8m. Including impairment changes and other factors, Monitise reported a statutory loss after tax of £224m. 

What’s more, Monitise now expects revenue to decline further during 2016. However, management still expect the group to report a positive EBITDA for full-year 2016. 

Unfortunately, it’s no longer possible to trust these predictions from the company. City analysts believe that while Monitise could reach EBITDA profitability next year, the group will continue to report hefty 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.

That being said, 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. 

Still, now that Monitise’s growth has come to a halt, management will find it harder than ever to turn the company around. 

Surging ahead

As Monitise struggles, Optimal Payments (LSE: OPAY) is surging ahead. Indeed, unlike Monitise, Optimal is cash-generative, growing rapidly and has a strong cash balance. 

For example, for the six months ended 30 June 2015 Optimal’s sales increased 40.2% to $223m. Adjusted profit before tax rose by 18.7% to $37.3m and diluted earnings per share increased 11.4% to $0.12. Excluding cash raised through Optimal’s rights issue, group cash at period end amounted to $113.3m. 

Optimal’s deal to acquire its money transfer peer Skrill should start to show through in the company’s earnings during the second half of the year. 

City analysts expect Optimal’s earnings per share to fall by 6% this year, due to acquisition costs and the higher share count — a result of the rights issue used to fund the Skrill deal. Nevertheless, after Optimal completes the integration of Skill, which should take place next year, City analysts expect the company’s earnings per share to jump 26%. Further, group costs should fall as merger synergies flow through, improving Optimal’s profit margins and cash generation. 

Based on current City figures, Optimal currently trades at a forward P/E of 18.1 and 2016 P/E of 14.2. And according to these numbers, Optimal trades at a PEG ratio of 0.5 for 2016, indicating that the company’s shares offer growth at a reasonable price. 

The post Here’s Why I Would Sell Monitise Plc And Buy Optimal Payments Plc appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

The latest bad news for shareholders came in a trading update last month for the company’s half-year ending 30 September. Blinkx said it expects to post revenue of $85-$95m for the period. This compares with revenue of $106m in H1 last year and $112m in H1 the year before. The problem is an industry shift away from desktop and “evolving standards” (basically, a euphemism for advertisers demanding greater verification and filtering to ensure they are reaching their target audiences).

As well as the pressures on revenues, there is a double whammy in that the programmatic trading and mobile usage, to which the industry is migrating from desktop, is lower margin. Blinkx expects to make a $5-$8m EBITDA loss (earnings before interest, tax, depreciation and amortisation) for the current half-year, compared with a $1m profit in H1 last year and an $18m profit in H1 the year before.

One positive is that Blinkx has plenty of cash: it has guided on $82-$85m for the 30 September half-year end — although this is a hefty drop on the $115m of 12 months ago. Some see value in the stock at current levels. For example, Blinkx notified the market today that hedgefund Tosca has just increased its stake in the company to over 20%.

Can Blinkx turn its business around and how profitable might it be in the new industry environment? We won’t know the answer for some time. As such, for me, this is a stock to watch rather than buy.

Optimal Payments

In contrast to Blinkx, online payments group Optimal Payments (LSE: OPAY) is a stock whose currency is rising. After a recent transformational acquisition of rival Skrill, the AIM-listed group is valued at £1.5bn (at a recent share price of 313p), and intends to move to London’s main market, where its size would make it eligible for inclusion in the FTSE 250. Optimal Payments today announced an EGM on 28 September for shareholders to vote on a new memorandum and articles of association and a change of the company’s name to Paysafe Group.

Looking ahead to next year, analyst earnings forecasts for the enlarged group give a price-to-earnings (P/E) ratio of 18, which is about average for a FTSE 250 firm. With earnings growth forecast to be 18%, the P/E-to-earnings growth (PEG) ratio is bang on the fair value marker of 1.

I have a couple of concerns about Optimal that are buried in last year’s annual report: namely, “approximately 37%” of revenue came “from one customer”, and the group has “a material indirect dependency on the Chinese online gambling market”. These represent not insignificant risks. Anyone who recalls Optimal in its previous guises will know that the company was hammered by regulation of the US online gambling market a decade ago.

EMIS Group

EMIS Group — valued at £620m (at a recent share price of 986p) — is a “blue-chip” AIM company, but nowhere near as much talked about on private investor bulletin boards as Blinkx and Optimal. EMIS describes itself as “the UK leader in connected healthcare software and services”. It helps clinicians share vital information, and its solutions are used across every major part of the UK healthcare network. There is good momentum in the business, because the NHS is desperate to cut costs and improve efficiency.

In its half-year results announced today, EMIS reported a 17% rise in revenue to £78m, of which 78% was recurring revenue. Earnings were up 18% and the Board increased the interim dividend by 15%. If earnings growth were to continue at the same rate, the current-year P/E would be 21, falling to 18 next year. The 2016 P/E and PEG, then, come out identical to those of Optimal Payments.

EMIS has “some concentration of risk, as the Group trades extensively with various parties within the NHS”, but I would suggest this risk is significantly lower than Optimal’s single customer and China risks. As such, EMIS looks buyable to me, although I would be hoping for a bit of a pullback after a 5% rise in the shares on today’s results.

The post Should You Buy Blinkx Plc, Optimal Payments Plc Or EMIS Group Plc? appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

G A Chester 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.

Optimal’s sales during the first half increased 40.2% to $223.0m. NETELLER Stored Value and NETBANX Straight Through Processing business rose 20.1% and 47.4% respectively during the period.

Adjusted earnings before interest, tax, depreciation and amortisation jumped by 27.9% to $49.9m, and adjusted profit before tax rose by 18.7% to $37.3m. Adjusted diluted earnings per share increased 11.4% to $0.12. 

However, statutory group profit after tax fell 91% to $2.4m, due to a doubling of depreciation and amortisation costs as well as a $12.4m charge relating to the acquisition of Skrill. These results do not include any contribution from the Skrill acquisition. The deal was completed after the period end. 

Excluding cash raised through Optimal’s rights issue, group cash at period end amounted to $113.3m. 

Strong results 

Optimal’s first half results showcased the company’s existing strengths, but there is more to come. Indeed, now that Optimal has completed the acquisition of Skrill, the company should see sales jump during the second half of the year. What’s more, as sales push higher, costs should fall as merger synergies flow through, and one-off costs related to the acquisition disappear. 

City analysts expect Optimal’s earnings per share to fall by 6% this year, due to acquisition costs and the higher share count — a result of the rights issue used to fund the Skrill deal. Nevertheless, analysts expect Optimal’s earnings per share to jump 18% during 2016 after the Skill integration.

Based on current City figures Optimal currently trades at a forward P/E of 17.8 and 2016 P/E of 15.1. And according to these numbers, Optimal trades at a PEG ratio of 0.9 for 2016, indicating that the company’s shares offer growth at a reasonable price. 

A better pick? 

At first glance, Optimal looks expensive, and the company’s close peer, Paypoint (LSE: PAY) looks to be the better pick. 

Indeed, Paypoint currently trades at a forward P/E of 16.4. Still, the company’s earnings are only expected to grow at a steady 6% to 8% per annum for the next few years. That said, Paypoint currently supports a dividend yield of 4.5%, eclipsing Optimal’s token dividend yield of 0.5%.  

So, if you’re an income investor, Paypoint could be the better pick although if you’re looking for growth, Optimal ticks all the boxes. 

Not attractive

Unfortunately, when compared to Paypoint and Optimal, Monitise (LSE: MONI) looks like the runt of the litter.

While Monitise has its attractive qualities, the company is still burning through cash at an alarming rate. It’s questionable if the company can survive much longer without having to conduct yet another fundraising. 

For example, during the first six months of the year Monitise burned through roughly £40m in cash, according to the company’s trading statements. On the other hand, Optimal reported a free cash flow of $29.9m for the first half of 2015, while Paypoint generated a free cash flow of around £35m during 2014. 

The post Optimal Payments Plc’s Profits Jump, But Are Paypoint plc Or Monitise Plc Better Buys? appeared first on The Twelfth Magpie.

More reading

• 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?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise and PayPoint. 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 past two years has seen the share price of Optimal Payments (LSE: OPAY) soar by 136% to today’s 289p, including an 11% rise on the day so far following a bit of after-hours news on Monday evening. Optimal has been attempting a takeover of Skrill Group, a digital payments company operating across Europe, and now has approval from the Financial Conduct Authority for the deal.

Completion is expected on 10 August, and the firm intends to apply for a main market LSE listing shortly afterwards to move away from AIM.

Profit is what counts

Optimal, which described Skrill as “one of the largest pre-paid online voucher providers in Europe with its paysafecard brand” has the advantage of having been in profit for several years, so we do have some valuation metrics from which to judge. And even with the big share price jump we’ve already seen, that judgment looks favourable to me.

Prior to the update on the Skrill deal, forecasts were suggesting a P/E of 18 for this year, dropping to a little over 15 in 2016. That’s a bit above the FTSE average, and Optimal’s dividends should yield less than 1% this year and next, but for a company with strong growth potential it’s an attractive valuation.

Fortunes have, sadly, gone in the opposite direction for Monitise (LSE: MONI), once a favourite with Visa Inc which was an early shareholder and partner. But Visa is moving towards its own payment system, has been selling off its Monitise shares, and is widely expected not to extend its deal with the company beyond its expiry in 2016. The result has been an 89% collapse in the share price over the past 12 months, to just 4.5p.

Reversal of fortunes

To put the two companies into further perspective, their relative market caps have reversed — after the collapse, Monitise is now valued at only £105m, while Optimal Payments’ valuation has climbed to more than £1.2bn.

The future for the whole digital payments business is still very open, and the launch of Apple Pay by Apple Inc in the UK has certainly livened things up — after just a few weeks of business in the US, Apple Pay had already captured 2% of the mobile payments market.

But it’s not necessarily bad news for Optimal Payments or Monitise, as both are working on integrating their systems with Apple’s as Apple opens its interfaces for access by others — and the end result should be complementary.

Which is better?

Should you buy either of these two companies? Well, if you bought into Monitise you’d be banking on the shares being oversold, but sentiment does seem firmly against the company at the moment — and with the highly competitive nature of the business, it’s unlikely that all of today’s players will be around in five years time.

If I had to choose, I’d go for Optimal Payments, as it is already profitable, is paying dividends (just), and its latest acquisition will bring desirable European expansion.

The post Why Has Optimal Payments Plc Soared While Monitise Plc Sinks? appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

In the case of Optimal Payments, it announced that it has entered into an amended agreement regarding its acquisition of Meritus, with the number of Optimal Payments shares to be issued to the sellers and other parties set to increase from 9m to 12.8m. This has been decided as a result of the dilutive impact on the value of the shares following Optimal Payments’ three for five rights issue earlier this year.

Furthermore, Optimal Payments has also changed the dates for the issuance of the tranches of shares and amended the reference price of the shares for determining if recipients are to be paid additional consideration. This has been reduced to £2.75 from £3.93 and means that additional consideration would be payable in either cash or shares if the share price of Optimal Payments declined to less than £2.20 (representing 80% of the new reference price).

Clearly, market sentiment has picked up following the news, with Optimal Payments’ share price being up 3.5%. And, looking ahead, there is scope for further gains over the medium term since Optimal Payments is forecast to increase its bottom line by as much as 17% next year. This could cause investor sentiment to be positively catalysed and, with Optimal Payments trading on a price to earnings growth (PEG) ratio of just 0.9, there is considerable scope for an upward rerating over the medium to long term.

Meanwhile, Roxi Petroleum’s share price is up by over 6% today after the company announced that it has reached a deal to cancel royalty payments from its main BNG asset in Kazakhstan. In return for issuing shares in the company which make up around 5% of its enlarged share capital to specific parties, including Canamens and Sector Spesit, Roxi Petroleum will no longer be required to make royalty payments to those entities. This is viewed as a good deal by the company’s management, with it removing a future uncapped liability that may have limited its ability to access debt financing.

As a result, Roxi Petroleum’s share price could begin to reverse the recent weakness that has seen it fall from 18p in June to its current level of 11p. Certainly, as a smaller oil company it remains exposed to a falling oil price and, in the short run, this could act as a brake on the company’s share price performance. However, with Roxi Petroleum’s flagship asset, BNG, being relatively high quality, it appears to have the potential to post encouraging share price gains over the medium to long term. And, with it having a price to book ratio of 1.5, there seems to be sufficient scope for an upward rerating to merit purchase at its current price level.

The post Roxi Petroleum plc & Optimal Payments Plc Soar On Positive News Flow appeared first on The Twelfth Magpie.

More reading

• 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?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens 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.