Cash is king? That was once! Especially young people prefer to pay cashless. The market potential for the providers of the corresponding infrastructure is huge. Takeover fantasies in the industry – as well as the latest offers for Worldpay and Paysafe – are fueling the prices of payment providers. The main shares in the check.
The Indians are known to be a people of the cash payer. Especially for smaller sums of up to 5000 rupees, according to a GfK study. Although with the amount of the amounts also the readiness for cashless payments with bank or credit cards to pay in the shop with the smartphone in this country, however, often provides for questioning looks – mostly from the cashier itself.
Other countries are already much further. But even in this country, young people who grew up with the Internet and smartphones are much more eager to experiment. In addition, booming online shopping means there is no way around cashless payments any more.
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According to the World Payments Report, there were around 433 billion cashless transactions worldwide in 2016. HSBC analysts expect their number to continue to grow by ten percent a year over the next five years. Reason enough for a close look at the most promising companies in the payment industry.
Vantiv: New payment giant
With its $ 10 billion bid for UK rival Worldpay, US payments processor Vantiv not only laid the groundwork for a new payment giants in early July, but may also have kicked off a consolidation in the industry.
The idea behind the proposed merger: Vantiv, the largest processor of credit card payments in the US, has so far generated about half of its sales with large retail chains. But they are particularly suffering from competition from online shops, especially Amazon. Worldpay, on the other hand, focuses on smaller brick-and-mortar retailers and making payments on the Internet. Worldpay is struggling in the US: Platzhirsch Vantiv’s EBITDA margin is almost twice as high as that of the British at 40 percent.
The acquisition thus holds potential for high cost synergies and increased sales. The £ 3.85 Vantiv offering per Worldpay Share means only about a 20% premium to the June 30 closing price. On this basis, Worldpay is rated in the deal with a 2018 P / E of 24 and 5.4 times sales – in peer group comparison, this is absolutely out of line.
After co-interested JPMorgan does not want to engage in a competition, the acquisition is already priced in the opinion of the SHAREHOLDERS in the price of Worldpay. An entry is therefore no longer appropriate. At Vantiv, investors can now put a foot in the door.
Square: In the fast lane
“Paypal Should Take Over Square.” This phrase by loop-capital analyst Joseph Vafi was enough last week to push Square’s stock up more than six percent and reach a new all-time high. The reaction shows that the payment industry is on the move and is expected to make further acquisitions.
Square is considered one of the hottest candidates. Even Visa should have an eye on it. No wonder, because the young company has successfully established itself in its niche and is now pushing for the big stage. Founded by Twitter boss Jack Dorsey in 2009, Square started with a small adapter and app that turns any smartphone into a card reader reader.
In the following years, the start-up created a whole payment ecosystem with a clear focus on small and medium-sized enterprises. Whether hardware and software for payment processing, write bills, take reservations and orders or create rosters: Square offers everything from one source. Even business loans and its own food delivery service has the company in the portfolio.
This is well received by traders, as the volume of payments processed in the past five quarters has grown on average by 38.6 percent compared to the same period of the previous year. Adjusted sales even show an increase of 52.4 percent over the same period. In the current year, the board is aiming for up to $ 900 million. Although the operating result has been positive for four quarters and was in the first quarter at 27 million euros, the bottom line writes Square but still in the red. But even here, there is great progress: According to Bloomberg analysts expect the fourth quarter of 2018 for the first time with a net profit.
In order to achieve this, Square will increasingly focus on larger dealers in addition to expanding its product portfolio. Although this means a little more effort in the care, but bring in return significantly higher transaction volumes. In addition, the global expansion of the company is still in its infancy. Square is currently only active in six countries: USA, Canada, Australia, Japan and, more recently, Great Britain and Ireland. Countries such as France, Belgium and Sweden, as well as large parts of Asia, offer similarly good conditions as Great Britain and should soon follow.
It is not really surprising that larger companies in the payment and tech industry are listening to this growth story. But Square will not be cheap – under 30 percent take-over premium on the already well-run course will probably go anything. Square would then be valued at around twelve billion dollars (about 10.5 billion euros), which corresponds to a 2018 KGV 85 and 10 times the annual turnover.
Investors who have followed the initial recommendation of the SHAREHOLDERS in September 2016 can look forward to the fact that Square has more than doubled since then. But the end of the flagpole has not yet been reached. If the high rating does not deter you, weakness can continue.
Paypal: Does Mastercard access?
If that is not an announcement! “Paypal is not at the end, but only at the beginning of an outperformance, which will probably last many years,” said Bernstein analyst Lisa Ellis in a recent comment on the stock. “The company has become its own ecosystem within the payworld and will grow even stronger through acquisitions.” Ellis’ target price: $ 61.
Thus, the end of the flagpole should not be reached when the takeover rumors about Paypal are getting louder. Last year, the market speculated that Mastercard would like to incorporate its competitors in order to get closer to Visa. American Express was also said to be interested in Paypal.
Such rumors clearly show how shiny Paypal is. In the past seven years, the number of active accounts has increased by 140 percent to 200 million. The transaction volume quintupled to $ 100 billion during that period.
In the US, the next competitor is now in the starting blocks: cell. With the payment app 30 banks want to win together above all young customers. So far, Paypal scored particularly well with his App Venmo at the Millennials. The service currently has an estimated 20 million users who paid $ 6.8 billion in the first quarter, an increase of 110 percent compared to Q1 2016. In social media, Venmo users praise the app over the green clover. Cell will have a hard time.
The Paypal stock is not expensive with a 2018 P / E ratio of 25, considering the expected earnings growth of 18 percent and the potential of the market. Since the recommendation of the SHAREHOLDERS, the title is 45 percent plus. Clear thing: There is more.
Ingenico: insider tip from France
After the acquisition of Worldpay by Vantiv many investors came to the thought: There was something at Ingenico. The French specialist in payment services, which among other things produces payment terminals, this spring became the focus of takeover speculation. At that time, it was said that the consulting company Atos was to Ingenico and wants to pay up to eight billion euros. But nothing came of the deal.
Ingenico offers a lot, for example, fantasy in terms of e-mobility. Ingenico has signed a cooperation agreement with infrastructure company Spie three months ago: Ingenico will equip 9,800 charging stations with a payment terminal. Motorists can pay by card or smartphone. The need for charging stations is huge: there are currently 2.5 million stations, and by 2020 over 12 million will be needed.
Ingenico also benefits from the fact that many cities are making their ticket and car park terminals fit for mobile payments. Also restaurant and supermarket cash registers must be converted. The e-payments division has long been one of the Group’s growth drivers.
The Ingenico stock comes in at a 2018 P / E of 16, which is cheap, especially when compared to Worldpay. Vantiv pays 24x the 2018 profit and 5.4x revenue for Worldpay. Ingenico’s KUV is 1.9.
Growth and imagination to fall away
The market for cashless payment options is hot and is additionally fueled by the takeover fantasy. This is reflected in part already in courses and reviews. At the same time, the companies score points in the check with convincing growth stories. The peer group comparison also shows that there are still bargains in this industry.