Among its clients, the company operates as a payment service partner for some well-known blue-chip companies and some of the world’s “most demanding” businesses. The firm provides “global omnichannel payments services from card acquiring and issuing to payment processing and checkout.” All its services are “underpinned by advanced risk management solutions.”

A global enterprise

The company has offices “around the world” and its platform connects to “all” the big payment cards including Visa, MasterCard, American Express and Union Pay alongside more than 150 local payment methods. At first glance, the growth potential seems big, and since the firm arrived on the stock market in 2014 the financial record is quite good. Revenue, operating cash flow and normalised earnings have all been on an upwards trajectory, and City analysts following the firm expect earnings to grow around 20% this year and 12% in 2019.

Today’s interim results reveal a mixed bag of numbers. Revenue increased 26% compared to the equivalent period last year, but cash from operations only lifted 1%. Meanwhile, the diluted earnings per share figure slipped by 2%. However, the directors are optimistic about the outlook and pushed the interim dividend up by 15% pointing to an adjusted EBITDA rise of 15% as some justification for the move.

The company defines adjusted EBITDA as a “company-specific measure which is earnings excluding finance income, finance expense, taxes, depreciation, amortisation, acquisition costs and contingent remuneration, restructuring and settlement costs, and share-based payments charge.”  Some critics would argue that such measures tend to show what a company would have earned ‘without all the nasty bits’, but I’m willing to give SafeCharge the benefit of the doubt and assume the measure really does show the underlying growth and performance of the company.

Strong growth with an elephant in the room

Indeed, the processed volume increased by a whopping 59% to $6.7bn, suggesting that business is truly expanding. And one of the measures I really like in the report is that the firm is free of borrowings and has around $86m in cash sitting on the balance sheet, which suggests that the incoming cash flow is real and serving the business well.

Chief executive David Avgi explained in the report that “the strong set of results” was driven by “intensified marketing efforts and a strengthened sales team.” SafeCharge’s “robust” infrastructure, advanced technology and innovative approach to payments “are gaining increased market recognition.” Because of that, the company enjoyed several Tier 1 customer-wins and has “a strong sales pipeline.” 

He also asserted that “significant” revenue growth is coming from existing customers “who appreciate SafeCharge’s high quality of account management and customer support.” The outlook is for revenue in 2018 to be “at the top end of market expectations.” However, I’ll reserve judgement about the quality of the firm’s growth until I see the cash flow figure rising too.

To be honest I like the look of the firm’s growth potential and big forward dividend yield, but one thing makes me wary about holding the stock: almost 70% of the shares are in the hands of one dominant shareholder, Israeli-Cypriot businessman Teddy Sagi, who can more or less do what he likes with the company at any time.

The post Why I’d be wary of this otherwise promising 5%-plus yielder appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Safecharge

£450m market cap SafeCharge International Group (LSE: SCH) is a UK-based payment services provider. The company provides these services to a blue-chip client base all around the world, with its proprietary payment platform connecting directly to all major card schemes including Visa, MasterCard and American Express.

Reporting full-year numbers for 2017 this morning, the company revealed that it processed 174m transactions last year, a 38% increase on 2016. This pushed revenues up a healthy 7% to $111.7m, although diluted earnings per share fell 9% to 15.8 cents on the back of larger employee-related and restructuring costs.

Turning to the dividend, SafeCharge operates a policy whereby it pays out 75% of adjusted EBITDA, as long as there is no material M&A activity. As a result, the company has this morning announced a full-year payout of 16.9 cents per share, a yield of 4% at the current share price. That now marks three consecutive dividend increases since the firm paid its first distribution in 2014. In this time, the payout has grown over 100%. Can investors expect more dividend growth going forward?

As it stands, City analysts currently forecast a payout of 21 cents per share for 2018. At today’s share price, that equates to a yield of 5%. However, analysts’ forecasts can be a little inaccurate sometimes, so I’d approach that estimate with an element of caution. For example, today’s 16.9 cent dividend is around 11% below what analysts had pencilled in for 2017.

Nonetheless, with CEO David Avgi commenting this morning that “we remain confident that our focus on higher quality revenues driven by a healthy sales pipeline will yield profitable revenue growth in 2018 and beyond,” the outlook here does look positive, in my view.

Polar Capital Holdings

Also paying out sizeable dividend cheques to shareholders is investment manager Polar Capital Holdings (LSE: POLR). The company runs a range of specialist funds including the popular Polar Capital Technology Trust, and currently has assets under management of around £12bn.

For the last four years, it has paid shareholders 25p per share in dividends each time. At today’s share price, that equates to a yield of a high 5%. Does that make it a ‘buy’ for its yield?

One thing that’s worth noting about the dividend here is that for the last two years, it hasn’t been covered by earnings. For 2016 and 2017, adjusted earnings per share were 22p and 20.4p respectively, meaning that dividend coverage was below one. That’s clearly not ideal from an income investing perspective, as it suggests the payout is not sustainable.

Having said that, for the year ending 31 March 2018, analysts do expect a significant jump in EPS, to 35.6p, as well as a hike in the dividend, to 26.4p per share. With that in mind, it could be worth waiting for full-year results before buying the shares for the dividend, in order to get a better idea of payout sustainability.

The post Two 5% dividend stocks you may not have spotted appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Chesnara

Life insurance and pension provider Chesnara (LSE: CSN) specialises in buying portfolios of insurance policies from other insurance firms and managing them until they’ve expired. The £580m market cap firm currently administers over a million life and pension policies and manages over £7.5bn in funds.

Chesnara takes great pride in rewarding shareholders with sizeable dividend payouts, and the dividend growth generated by the company over the last 10 years has been impressive. Indeed, over the last decade, Chesnara has increased its dividend from 13.1p to 19.5p, a compound annual growth rate (CAGR) of an inflation-beating 4.1%.

City analysts forecast a payout of 19.8p for this year, meaning that the forward-looking yield is now a formidable 5.1%, higher than the yields of many FTSE 100 companies. Furthermore, dividend coverage for this year is estimated to be around 1.5 times, suggesting that there’s little chance of the dividend being cut.

Chesnara’s share price has climbed from around 320p a year ago to 390p today, a gain of 22%. However, with earnings of 30.5p forecast for FY2017, the stock’s valuation still looks attractive at a forward-looking P/E ratio of 12.8.

SafeCharge International 

Turning my attention to a company with an even smaller market capitalisation, £410m market cap SafeCharge International (LSE: SCH) also sports a sizeable dividend yield at present.

The UK-based small-cap company is engaged in the provision of online and mobile payments services, and has a diversified client base which includes William Hill, Paddy Power Betfair and McDonald’s. Online and mobile payments is a fast-growing area right now, and the company has enjoyed a strong rise in profitability over the last few years.

Indeed, between FY2014 and FY2016, revenue climbed from $77m to $104m and net profit surged from $14.4m to $26.6m. This impressive growth has enabled the company to reward its shareholders with increasing dividend payouts, and over the last three years, shareholders have received payments of 8.3 cents, 11.3 cents and 16.5 cents. City analysts envisage a dividend hike of a further 13% this year, which would take the payout to around 19 cents, a yield of an impressive 5.2%.

It’s worth noting that dividend coverage isn’t particularly strong, at a level of 1.1 last year. And there are other risks involved in the investment case, including the fact that the online gambling industry, a sector that the company has significant exposure to, is prone to interference from regulators.

However, in late July, management stated that “the Board remains confident that the outcome for the year will be broadly in line with market expectations” and on a forward-looking P/E ratio of 16.7, the valuation here looks very reasonable.

The post Two small-cap stocks with 5% dividends I’d buy today appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Paddy Power Betfair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While many of Neil Woodford’s holdings are well-known blue-chips, the star fund manager is also known for buying up huge stakes in small-caps he likes. One such company he’s just taken a 19% stake in is clay brick and concrete block manufacturer Forterra (LSE: FORT). With a major backer such as Woodford, what analysts expect to be a 3.6% yield in 2017, and a valuation of 11.8 times forward earnings, is this relatively unknown income star too good to pass up?

Well, at its heart the company is a play on the health of the domestic housing market as new builds accounted for 63% of turnover and remodelling a further 32% of revenue in 2016. This makes the company a bit risky for those who see troubles ahead for the housing market in the near term, but over the long term, there’s plenty to like about the business.

The company has racked up four consecutive years of sales and margin improvements as new home builds have continued apace and management actively managed production output to minimise excess inventory and concentrate on production from the most efficient facilities. This led to EBITDA margins hitting 23.7% in H1 and cash flow ramping up significantly.

The company was taken public in 2016 by private equity fund Lone Star and, as is normal with these types of deals, was highly leveraged at the time of its IPO. This means that for the time being, a large chunk of the company’s cash flow is being diverted to interest and principal payments. However, net debt at the end of H1 had fallen to one times EBITDA, already significantly lower than the 2.2 times leverage profile at the time of the IPO.

As the company’s balance sheet improves, there’s very high income potential in its future. Last year pre-exceptional operating cash flow was a very healthy £69.8m, of which only £4m was used to fund dividend payments. And even after accounting for IPO costs, interest payments and capex, the company still produced £24.7m in net cash flow.

If you believe the domestic housing market is in good shape then this high level of cash flow and reasonable valuation could make Forterra a very interesting income option.

A safer option?

Another income option that’s flown under the radar is payment solutions business SafeCharge (LSE: SCH), which offers a 5.2% dividend yield and trades at 16 times forward earnings. The company started off providing payment and fraud solution services for the online gambling industry that allow clients to receive and dispense payments in a slew of different countries.

While these gaming clients still provide a large chunk of sales, the firm has wisely sought to diversify its client base in recent years into safer sectors. This move is paying off so far with full-year core revenue rising 11% in 2016 to $101m and adjusted EBITDA hitting 14%.

While SafeCharge offers investors high margins, solid growth prospects and impressive dividend streams, it’s one company that is well worth doing an extra level of due diligence on before investing. The online gaming industry is one that’s always at risk of incurring the wrath of regulators and with a full 70% of SafeCharge’s shares held by insiders, minority shareholders will need to have a very high degree of trust in management’s intentions in order to feel safe.   

The post Is this Woodford-backed income star simply too cheap to pass up? appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Surprise results

Reporting on Wednesday was low cost multi-currency payments service FairFX (LSE: FFX). The company released a half-year trading statement which was better than expectations. It achieved its first interim net profit since IPO. Turnover for the first half of the year was up 25.8% year on year, with the company experiencing broad-based growth. Gross margin moved higher thanks to a more profitable business mix, while the cost benefits of rationalising the supply chain led to a more profitable period.

Total turnover from pre-paid cards and international payments increased 23% and 25% respectively. The company’s strategy on the retail card and travel money side is to improve the user experience. Thus far, it seems to be making progress in this regard, while campaigns to increase customer retention and cross-selling opportunities have been launched.

Looking ahead, FairFX is expected to report a net profit in the current year. It is forecast to deliver growth in earnings of over 600% next year, which indicates that it is moving in the right direction. This puts it on a forward price-to-earnings (P/E) ratio of 14, which suggests it offers excellent value for money given its long-term growth potential.

Potent combination

Also offering an attractive outlook for investors within the payment services sector is Safecharge (LSE: SCH). It is forecast to post a rise in earnings of 17% in the current year, followed by further growth of 14% next year. Despite this, it trades on a PEG ratio of just one, which indicates that its shares could deliver outperformance of the wider index over the medium term.

As well as growth potential, Safecharge also offers enticing income prospects. They could prove to be a catalyst on its valuation, since inflation is forecast to move higher than 3% over the coming months. As such, stocks offering high yields may become more popular among investors. With the company currently yielding 5.2% from a dividend which is expected to increase by 15% next year, it offers significantly better income prospects than many of its industry and index peers.

Of course, management changes at the company could increase its risk profile. However, with a sound strategy and a replacement CFO having been announced, it looks set to deliver on its growth potential. This could make it a worthwhile and profitable purchase for the long term.

The post Can these small-cap shares provide a strong source of growth? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One such stock is Morses Club (LSE: MCL). The consumer finance business has only been public for a little over a year but is already an established income stock. The company offers unsecured loans to customers over 20-to-78-week periods, and thanks to the scrutiny this industry has been subject to over the last few years, it has fallen out of favour with investors. 

Based on City estimates for growth, shares in the credit business currently trade at an undemanding forward P/E of 12 and support a dividend yield of a little under 5%. There’s also plenty of room for payout growth in the years ahead. 

Future dividend champion 

Morses recently gained its full FCA authorisation, so the business is one of the few in the short-term loan sector that’s fully regulated, which should help improve growth. By the end of the fiscal year to 28 February 2019, City analysts are projecting total three-year earnings per share growth of 30.3%, taking earnings per share to 13.3p. Based on current estimates, Morses is on track to pay out 6.4p per share this year, a payout that’s covered 1.7 times by earnings per share. Such a low payout ratio gives plenty of room for further payout growth. 

In fact, City analysts are expecting the payout to grow by 24% over the next three years as earnings expand and the payout ratio remains constant. If management decides to pay a larger share of profits, the payment could grow even faster. If the ratio declines to 1.5 times, Morses will yield 6.9% with a per-share dividend of 8.8p. 

Safe yield 

Safecharge International (LSE: SCH) is another hidden financial stock that looks attractive as an income investment. At the time of writing, the shares support a historic dividend yield of 4.9%, but analysts are expecting management to hike the payout by 11% this year for an estimated 14.1p or yield of 5.3%. Further growth is expected for the following year. Analysts have pencilled-in dividend growth of 5% for 2018 giving a projected yield of 5.5%. 

And I wouldn’t rule out upward revisions to these estimates. Safecharge’s earnings are rising rapidly. Earnings growth of 24% is expected this year, followed by 13% during 2018. This rapid earnings rise may encourage management to hike dividend payouts further. At the time of writing shares in Safecharge currently trade at a forward P/E of 15.5 falling to 13.8 for 2018. Considering the company’s fast earnings growth, this high valuation does not appear to be too demanding. 

The post Two cheap 5% yields that can grow by 25% appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Strategy progress

Safecharge’s strategy to win tier 1 customers is progressing as planned. In new verticals, it’s now processing and acquiring European card transactions for Nayax, which is a solutions provider for the unattended machine industry. This includes vending machines in over 100,000 locations worldwide. In traditional verticals, Safecharge has higher quality revenue after tier 1 client wins such as PaddyPower Betfair and Sun Bingo. This should provide it with greater stability and resilience, while also boosting its growth rate.

In new markets, the company is now operating in Italy, Romania, Portugal and Poland. This increase in geographic diversity reduces the company’s risk profile, while also allowing it to access potentially higher rates of growth over the medium term. And with a new office in Singapore as well as expansion within the travel and airlines market, the outlook for the business is very encouraging.

Looking ahead

Safecharge is forecast to record a rise in its earnings of 28% in the current year, followed by further gains of 12% next year. On their own, such strong growth rates have the potential to improve investor sentiment. However, when combined with a price-to-earnings (P/E) ratio of 14.7, it equates to a price-to-earnings growth (PEG) ratio of 0.7. This indicates that there’s a wide margin of safety on offer, which should lead to substantial share price growth in future years.

In addition to growth and value appeal, Safecharge also has excellent income prospects. It yields 5.5% from a dividend that’s covered 1.2 times by profit. Alongside its high earnings growth rate, this indicates that there’s scope for a brisk rise in dividends.

Relative appeal

The payments services market is relatively broad and highly competitive. One operator within the mobile payments space that has enjoyed success in winning major clients is Monitise. Its mobile banking platform has been popular with customers and consumers alike. And the bad news? The company hasn’t been able to turn a successful product into a winning business model.

For example, Monitise remains lossmaking and is forecast to be in the red in the current year. While it has the potential to turn itself around in the years ahead, Safecharge is the company that’s performing well now. As such, it offers a much lower risk profile than Monitise, as well as clear catalysts to push its share price higher and a generous, well covered yield. As such, I’d buy Safecharge, but would avoid Monitise.

The post Why I’d buy Safecharge International Group Ltd over Monitise plc appeared first on The Twelfth Magpie.

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Peter Stephens 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.

With shares in Renew Holdings (LSE: RNWH) rising by around 9% today, it must seem as though the company’s growth prospects are extremely bright. That’s because with Renew Holdings being focused on UK infrastructure and its development, a rise in support for remaining in the EU (according to opinion polls) means that its near-term future is arguably a little more certain.

However, the referendum vote could still go either way and, as a result, Renew Holdings’ share price is likely to be volatile in the short run and could realistically move significantly in either direction.

In the long run, Renew Holdings seems to offer an appealing risk/reward ratio. That’s because it has bright growth prospects and yet trades on a relatively low valuation. For example, Renew Holdings is forecast to increase its bottom line by 5% in the current year and by a further 13% next year.

Despite this, it has a price-to-earnings growth (PEG) ratio of 0.8, which indicates that for investors who can live with above average volatility, it could prove to be a sound buy. Although a doubling of its share price may be some years away, Renew Holdings could deliver sizeable returns moving forward.

Favourable outlook

Also offering upbeat earnings growth prospects is mobile and online payment specialist SafeCharge (LSE: SCH). It is forecast to increase its bottom line by 37% in the current year and by a further 14% next year following a disappointing 2015 where its net profit fell by 2%. As a result of this downbeat past performance, SafeCharge’s shares have fallen by 21% in the last year as investor sentiment towards the company has weakened.

This fall in valuation presents an opportunity for long term investors to buy in at a discounted price. The mobile payments solutions space offers a favourable outlook as it become more prevalent and with SafeCharge trading on a PEG ratio of 1, it appears to offer strong growth at a very reasonable price.

Certainly, it is a smaller company which could have a somewhat volatile share price, but for less risk averse investors it now looks set to perform well as an investment. This doesn’t mean that it will necessarily double in value, but it does mean that its risk/reward ratio is relatively favourable.

A long way to go

Meanwhile, Sirius Minerals (LSE: SXX) has been a surprisingly strong performer in 2016, with its shares having risen by 19% year-to-date. Part of the reason for this has been improved sentiment towards the wider mining sector and this bodes well for Sirius Minerals’ financing requirements. On this front, Sirius Minerals is a somewhat risky proposition since it requires major fundraising to pay for its proposed £1bn+ potash mine in York.

With the outlook for commodity prices now being rather more positive than it was a number of months ago, Sirius Minerals may find it easier to generate the funds required. However, a failure to do so or a commodity price collapse akin to that seen in recent years could cause Sirius Minerals’ shares to come under severe pressure.

Clearly, in the long run they have the potential to double, but there is a long way to go before Sirius Minerals becomes a profitable entity. Therefore, it may be prudent to invest elsewhere – especially with a number of bargains being around in the stock market at the present time.

The post Are Sirius Minerals plc, SafeCharge International Group Ltd and Renew Holdings plc set to double or halve? appeared first on The Twelfth Magpie.

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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.

However, BHP Billiton appears to be well-placed to cope with further challenges in its markets. That’s at least partly because it has a very strong balance sheet with impressive cash flow. This should allow it to invest more heavily in maintaining and developing its asset base, while the diversity of the business also brings a clear advantage over rivals. This is evident from both a geographic and resource basis, with BHP Billiton having the potential to deliver more consistent returns than a number of its resources sector peers.

Looking ahead, BHP Billiton is forecast to increase its bottom line by as much as 164% in the next financial year. Clearly, this is heavily dependent on commodity prices, but the efficiency measures and cost-cutting BHP Billiton has undertaken in recent years are clearly starting to pay off. With its shares trading on a price-to-earnings growth (PEG) ratio of 0.2, they could be set for a colossal comeback.

On track

Also struggling in recent months have been shares in recruitment and staffing solutions company Staffline (LSE: STAF). Its shares have fallen by 25% since the turn of the year and this is at least partly due to concerns among investors for the future of the UK economy. With an EU referendum taking place next month and interest rate rises on the horizon, investor sentiment towards more cyclical companies such as Staffline has come under pressure.

However, with Staffline stating in its most recent update that its performance as a business remains strong and that it’s on track to meet expectations for the full year, now could be a good time to invest. Furthermore, it trades on a price-to-earnings (P/E) ratio of 9.6, which indicates significant upward rerating potential.

Take another look

Meanwhile, the share price performance of SafeCharge (LSE: SCH) has been hugely disappointing over the last year. The payments services provider has posted a fall in its valuation of 17% during the period despite its AGM statement saying it had delivered a strong Q1 performance, with sales and profit ahead of budget. Furthermore, SafeCharge has strengthened its management team and also delivered major new payment platforms for key customers.

Looking ahead, SafeCharge is forecast to increase its earnings by 36% in the current year and by a further 14% next year. This puts it on a PEG ratio of just 1.1 and with its shares yielding 3.7% from a dividend covered a healthy 1.7 times by profit, SafeCharge seems to have considerable growth, value and income appeal for long term investors.

The post Are BHP Billiton plc, Staffline Group plc and SafeCharge International Group plc about to make colossal comebacks? appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens owns shares of BHP Billiton. 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.

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.