The digital revolution comes with opportunities, many opportunities. One of them is the payment industry, which is being reshaped in recent years.
Payment service providers are booming because payment behavior is changing. A decade ago, the key offering of payment providers was the payment terminal. Online and mobile payments were negligible in terms of volume.
Recently, the world has witnessed several trends. First and foremost is the boom of e-commerce and mobile commerce. Second, most companies are in the process of transforming their business to serve the needs of a multi-channel customer. Third, IT back end systems are split from front end systems.
Given that, the payment providers that are leveraging these trends are able to boost their business. Let’s review three different companies, from mid to small caps, to make our point.
Fiserv (FISV) is a $21B company with an annual revenue of $5.2B. Its P/E ratio is 31x, and its forward P/E 21x. The company sits on $300M cash. It is focused on payment terminals but started playing the digital and mobile trend recently (although revenue percentage-wise still small). The company has one of the best momentum patterns. Great valuation, great financials, great chart pattern, great outlook.
Global Payments (GPN) is an $8B company with a similar P/E ratio as FISV (P/E 30x and forward P/E 19x). Its P/B is 10x, slightly higher than FISV, but still great value. EPS is currently 2.1 and the company has some $700M of cash. The chart shows a balanced momentum stock pattern.
One of the rising stars is TIO Networks (TNC.V) on the TSX Ventures Exchange. It is a small cap with a market cap of $127M. The company has great financials: EBITDA doubled compared to its previous quarter, and rose 3-fold q-o-q. The number of shares outstanding is 59M, and only increased slightly in recent quarters, which is astonishing for such a small company. The market loves this story as evidenced by increasing volume on a rising share price.
Payment (technology) providers have a great outlook. They are the single most ‘dangerous’ species for the banking industry. A recent survey by Efma-Infosys showed that the banking industry will be most impacted by young payment companies, see survey results below.
Given our view that 2016 will be another year in which stock picking will be a key success factor, we firmly believe that a very select number of sectors and companies should be considered. Without any doubt, payment (technology) providers is one of them, and the companies presented above offer excellent value for a portfolio in 2016.
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