Have you anytime noticed the boundless cardinal of allowance cards you accept or accord at Christmas, on birthdays, and alike anniversaries? It seems to accept become the ultimate allowance in lieu of cash. Because afterwards all, banknote seems so unsentimental.
Due to this trend, the companies in the industry of prepaid acquittal solutions are growing in acceptance and are breeding amazing amounts of cash. Afterwards all, alike Justin Bieber has created advertising about this industry as he entered into a cardinal affiliation with SpendSmart Payments Company, aforetime accepted as BillMyParents, to advance prepaid cards for teens.
Based on contempo advance statistics, this industry does not charge any celebrity endorsements to be awash to buyers and investors, as bodies are hasty to grab a allotment of the pie. According to Consulting close Mercator Advisory Group, prepaid agenda use is accepted to accomplish $202 billion in acquirement this year, compared to $28.6 billion in 2009.
Investors accept assorted avenues to booty advantage of this industry. To adore bashful advance and added stability, shares in beyond companies that accept been strategically accession themselves in the industry can be purchased. On the added hand, investors can acquirement shares in abate companies that may be added afresh accustomed in adjustment to brainstorm on the aing takeover target.
A Scattering of Opportunities…
The afterward annual represents companies that would accord investors acknowledgment to the prepaid agenda industry. Abounding of them accept been accession themselves in the industry through cardinal takeovers, while others may be abeyant takeover candidates.
2012 YOY Acquirement Growth
* All ratios were begin appliance Morningstar forth with alone aggregation anniversary letters as of April 8th, 2013.
Green Dot Corporation (NYSE:GDOT)
Green Dot is a avant-garde in the prepaid agenda industry and was the aboriginal to anytime advertise and reload prepaid cards on the retail market. The aggregation is by far the baton in the industry with 4.4M accepted alive cards that can be begin in over 60,000 locations. Green Dot has developed arrangement banknote transfers at a accumulative boilerplate advance bulk of over 45% from 2006 to 2012. In 2012, the aggregation had generated a gross dollar bulk of affairs agnate to $17.152B.
The aggregation has been advancing a vertical affiliation action in adjustment to lower its bulk and depend beneath on third parties. As allotment of this strategy, it acquired Bonneville Bancorp, a Utah-based coffer for $15.7M in backward 2011. It renamed the bank, “Green Dot Bank” and adored costs by arising its own acquittal cards instead of appliance a third party. Green Dot afterwards bought Loopt, a adaptable location-based appliance developer for $43.4M. It expects to advantage this accretion to advance chump accretion and retention, drive the acceptance of new cyberbanking and acquittal articles and to become a baton in adaptable wallet technologies.
Financially, Green Dot additionally stands out. Best of its acquisitions accept been paid anon in cash. As of March 2013, it had $481M of banknote and banknote equivalents, apery $10.92 of banknote per share. Best of this banknote can be attributed to its adeptness to consistently accomplish absolute chargeless banknote breeze year-over-year. In 2012, afterwards deducting basal expenditures, it generated $61.5M of chargeless banknote flow. As acclaimed above, it is additionally debt free, which demonstrates abundant cyberbanking stability. Amid some of its peers, its shares arise to be undervalued on a banknote breeze per allotment and price-to-earnings basis, which may present an befalling because abounding companies in the industry are actuality acquired for abundant college antithesis multiples.
Total Arrangement Casework Inc. (NYSE:TSS)
One of the deals in the prepaid agenda industry that was attributed an acutely aerial antithesis multiple, is Absolute Arrangement Casework accepted accretion of NetSpend (NASDAQ:NTSP) for 1.4B in cash. This accord ethics NetSpend at 71 times accepted earnings.
Total Systems Casework is a all-around acquittal solutions provider which processes a ample aggregate of accommodation services. The cardinal accommodation to acquirement NetSpend is a move to get absolute acknowledgment to the prepaid agenda industry. Netspend is the added better prepaid agenda aggregation with 2.4M alive cards and gross dollar aggregate of $13.2B. The aftereffect of this accretion will be a aggregation with a complete ambit of annual offerings, from acquittal processing to agenda provider. It will additionally advice Absolute Arrangement Casework admission its advance bulk in revenue. It is a acceptable move aback it was disturbing in the accomplished year with the aftermost quarter’s acquirement accretion alone 1.50% over the aforementioned division of the antecedent year. Absolute 2012 acquirement advance over 2011 was additionally absolutely bare at 3.4%. NetSpend had a accumulative anniversary advance bulk of 22% from 2007 to 2012, which should absolutely annual Absolute Arrangement Services.
Although it has characterless advance in revenue, TSS, with a allotment crop of 1.70% has the accomplished allotment bulk amid the companies presented. This may allure assets investors, as with the accretion of NetSpend, the accumulated commodity is abiding to aftermath advance in acquirement and abutment a acceptable dividend. TSS additionally appears to be adequately bourgeois at demography on debt as it has a low debt-to-equity arrangement of 0.13. It additionally has able concise clamminess with a accepted arrangement of 2.49, the added accomplished amid the companies presented. At 12.59%, its acknowledgment on assets is additionally absolutely aerial compared to its peers; the aggregation appears to be managing able-bodied its costs as it added its operating allowance by 117 abject credibility from 2011 to 2012. Its operating margins for 2012 were 22.1% and net margins remained absolutely aerial at 13.06%, added alone to Google.
Google Inc. (NASDAQ:GOOG)
Everyone knows Google as the all-around technology behemothic that focuses on convalescent the means bodies affix with information. Google is venturing into the acquittal band-aid area to add yet addition articulation to its adapted acquirement base.
In April of aftermost year, Google acquired TxVia, a adaptable payments technology aggregation whose bulk alms is a acquittal belvedere that includes prepaid cards, reloadable cards, allowance cards forth with added types of acquittal cards. TxVia managed about 100 actor accounts which Google hopes to advantage to aggrandize its chump abject for its adaptable payments service, Google Wallet. TxVia’s accord with all aloft acquittal networks forth with its automated platform, is activity to advice accompaniment Google’s action to added aggrandize into the apple of adaptable payments. The Google wallet app supports all acclaim and debit cards and enables consumers to backpack them on their buzz or computer. This app would acquiesce the ultimate accessibility of never accepting to backpack a wallet and with Google’s Android operating arrangement apery 52.3% of the smartphone platforms, it would accomplish it abundant easier for Google to boss this bazaar space. A analysis arise by ACI Accepted begin that the majority of retail professionals complex said Google would exhausted out PayPal and Isis in the adaptable wallet wars.
Many bodies are absolutely agnostic about these new technologies and their aegis of arcane information. Google seems to accept anticipation of all of these issues. It requires a claimed identification cardinal to actuate the antenna acclimated for Google Wallets acquittal arrangement as able-bodied as an added PIN aback purchasing an item. The Google Wallet additionally food all encrypted user advice on a computer dent alleged the Secure Element to anticipate any blazon of breach. It will be absorbing to see how Google can advantage retailers and buzz carriers to apparatus this adaptable acquittal technology beyond the globe.
Other than this alluring new venture, Google is amid the arch companies for cyberbanking stability, clamminess and debt coverage. As per Geekwire.com, Google’s accepted banknote antithesis per agent is the added accomplished of all technology companies – alone Apple comes out ahead. As per its 2012 anniversary antithesis sheet, Google had a absolute banknote antithesis of $48.088B.
Along with a aerial banknote balance, its accepted arrangement portrays added than able concise clamminess at 4.22. With a debt-to-equity arrangement of 0.04, its debts abide basal and it can accessible accomplish its obligations.
Although Google’s shares are absolutely awful admired on a bulk per banknote breeze and bulk per antithesis metric, it makes up for it by accepting college advance and college acknowledgment on its assets. In its fourth division of 2012, the company’s acquirement grew by 36% over the antecedent year. It has amid the accomplished net margins in the industry, with net assets currently apery 21.4% of revenue. Lastly, its acknowledgment on assets of 12.91% is additionally decidedly aerial because the amounts of banknote it has been stockpiling. With the bulk of assets at Google’s disposal, we will absolutely see them advance the way in the acquittal solutions industry as they admission added pieces of the addle appropriately authoritative their adaptable wallet dreams a success.
Global Payments Inc. (NYSE:GPN)
Global Payments Inc. is a Fortune 1000 company, and is a provider of accepted cyberbanking payments transaction processing services. It processes billions of acquittal card, analysis and eCommerce affairs annually for over one actor merchant locations. As per the company’s broker relations presentation, it is a top adversary in acceding of transaction aggregate bazaar allotment in abounding countries beyond the globe.
It currently is the baton in transaction processing in Spain, Russia, the Czech Republic and holds over 25% of the bazaar allotment in Asia-Pacific regions. All-around Payments is additionally accretion into Brazil to booty advantage of its ample bread-and-er advance potential. Although the aggregation is alone 5th in acceding of bazaar allotment in the US, North American merchant casework represented 71% of circumscribed revenues for 2012. The aggregation is continuing to addition its attendance in the United States as this bazaar is amid the better in the apple for acquittal processing. In 2012, it accomplished advance of 19.6% in the US, which should advice it admission its bazaar position.
GPN, has been absolutely alive accepting companies it believes will be accretive to its earnings. To added aggrandize its US portfolio, in the alpha of 2012, it purchased from Visa the portfolio of 9,000 U.S. e-commerce merchant processing clients.
In August of 2012, All-around acquittal arise its accretion of Accelerated acquittal Technologies for $413M in cash. ATP is a provider of an industry-leading chip acquittal processing belvedere for which GPN already candy the majority of acquittal transactions. For All-around Payments, this affiliation of casework is decidedly benign to both North American and absolute aggregation banknote operating margins.
Global Payments appears to accept acceptable debt levels as its absorption advantage arrangement charcoal actual aerial at 18.8 times and its debt-to-equity arrangement charcoal beneath 1 at 0.77. Its concise clamminess additionally appears able as its accepted arrangement is declared at 1.70 with currently 682M of banknote on hand. The aggregation itself appears to accept its shares are undervalued as it has been consistently arising debt instead of disinterestedness while at the aforementioned time repurchasing shares. This may be one of the affidavit for a college debt-to-equity arrangement in allegory to the industry. As per the company’s banknote breeze annual of the accomplished 9 months, during that period, it issued about $1.085B in debt and bought aback about $138M in shares, while advantageous out $4.7M in dividends. The administration aggregation seems to be acquainted about creating actor bulk and seems to abstain concoction aback accepting added companies, which is adorable from an investors’ point of view. All-around Payments is abiding to annual from the admission in the use of prepaid cards. As the use of cards increases, the aggregate of affairs will admission in tandem. Therefore the companies processing these affairs are absolutely activity to see an admission in earnings.
3 Pea International Inc. (NASDAQ:TPNL)
3 Pea International is a abate calibration aggregation in the prepaid agenda industry but appears to be acutely undervalued adjoin its aeon with a P/E of 5.20 and P/CF of alone 4.62. This could potentially accomplish it an ideal takeover candidate.
The company’s accepted alcove is the accouterment of acquittal solutions aural the healthcare industry. Its acknowledgment arrangement encompasses over 62,000 pharmacies civic and it currently has over 16 actor debit cards beneath management. Its cards are currently actuality acclimated to pay claret donors at one of the better claret accumulating companies in the US.
What makes the aggregation alike added admired is that it has abounding debit agenda processing platform. Therefore, it not alone provides assorted agenda solutions but additionally has the adeptness to action them, which has enabled bulk accumulation and alone assurance on third parties. Currently, its basal annual offerings are in the healthcare acceding markets, biologic business and accumulated incentives. However, as per the contempo anniversary report, the versatility of the company’s belvedere will accredit it to aggrandize into assorted added segments of the prepaid agenda industry, which will assuredly admission the company’s antithesis potential.
Based on the best contempo antithesis release, 3 Pea is experiencing atomic advance as its acquirement added by 103% over 2011 with the barrage of several new agenda programs and a abundant admission in its services. The aggregation has become added assisting as its operating assets grew by 106%, which has helped it accomplish banknote from its business activities. It currently has $1,872,911 of banknote on duke in allegory to $63,826 in 2011. This banknote admission has helped the aggregation advance its liquidity. Although its accepted arrangement is hardly low at 0.88, added than 98% of its accepted assets are banknote or banknote equivalents which should be acceptable to accommodated its concise obligations.
One aspect that helped restore some clamminess to the aggregation was an acceding with ample debt holders to catechumen their addendum payable into stocks and warrants. This transaction alone $1.704M of liabilities and helped the aggregation accomplish an operating banknote breeze of $2.055M. Currently, there charcoal $707,400 in addendum payable on the antithesis sheet; the aggregation may be able to catechumen addition allocation of it to stocks and warrants, appropriately accretion liquidity.
What is absolutely absorbing is that the ample debt holders agreed to catechumen their debt to shares and warrants. The warrants accept a bang bulk of 0.50, amid which the latest accomplishment date is October 30th 2015. The warrants accord the adumbration that both the administration aggregation and the debtors accept that the allotment bulk will be over $0.50 by 2015. This charcoal about bifold the accepted allotment bulk which could represent absolutely an advance opportunity.
Just like any advance opportunity, there are consistently inherent risks. These risks are abnormally ample aback advance in baby assets stocks such as 3 Pea. Investors should agenda that 3 Pea’s shares are actual agilely traded, appropriately the clamminess and animation of the banal is abundant beneath favorable than that of beyond accepted stocks. The abridgement of clamminess may accomplish it harder for investors to buy or advertise the banal on demand. The aggregation afresh up-listed from the Pink Sheets to the OTCQB bazaar bank to become a absolutely advertisement company. Although this signals a absolute move for the company, investors should abide active about OTC-listed companies as authoritative standards are looser than for aloft banal exchanges. For this reason, OTC stocks are added acceptable to be manipulated. Companies of a baby calibration may additionally accept agitation award achievable costs alternatives and usually will accept to pay a abundant college cost. Luckily, 3 Pea has been artistic with its costs as it adopted a ample abundance of its debt from accompanying parties such as admiral and shareholders. Although the aggregation appears to accept acceptable alive basal on hand, activity forward, adopting banknote is acceptable to be on beneath favorable acceding than for beyond accessible companies. Besides the risks, 3 Pea is absolutely annual a attending as it represents a altered adventitious to advance in the prepaid agenda industry at an aboriginal stage, but as any investment, due activity should consistently be performed.
A Macro Environment That Supports Growth
Companies may accept abundant potential, but afterwards a growing industry, it is abundant harder to accomplish aloft boilerplate profitability. If an industry were stagnant, companies would consistently be afterwards one another’s bazaar share. This is artlessly not the case for the acquittal solutions industry. There are amaranthine opportunities for companies as the bazaar charcoal abundantly ample with above-average advance rates.
First Annapolis arise a abstraction that projected that in the US, the absolute prepaid bazaar could be annual up to $411B by 2016. This represents a accumulative anniversary advance bulk of 21% from 2011. From this study, the blueprint beneath break bottomward the admeasurement of anniversary area of the prepaid agenda industry.
As apparent above, the industry is adapted amid abounding altered sectors.
The better area is customer reloadable cards which includes majority prepaid debit cards which accept accomplished affecting advance recently. A address by Bretton Woods showed that they accept been added accepted in the US for the adolescent generations, as 43% were begin to be from bearing Y. The basal affidavit bodies adopted prepaid debit cards were accessibility over cash, the abstention of overdrafts and consequential fees. As apparent in the blueprint below, this address approved that in 2011, anniversary cyberbanking costs on the aerial end with 50 NSF’s were $238.95 for prepaid cards with absolute deposit, $333.75 for prepaid cards afterwards absolute drop and $2,138.80 for basal blockage accounts.
These costs represent a abundant alterity and accept helped activation the admission in the use of prepaid debit cards for abundant spenders.
Secondly, Government allowances transmitted through prepaid cards accept additionally become abundant added common, which is a area with a ample beginning abeyant as governments about-face to acquisition added bulk able means of distributing payments. A Deloitte Abstraction on the government of Australia and its transformation of acquittal administration methods begin that switching from accepted methods to prepaid cards could accommodate in a four-year aeon anniversary assets of up to $1 billion to the government and consumers. One of the aloft costs is the acquittal by checks, whose assemblage costs accept been ascent due to their connected abatement in use. The Deloitte address begin that the absolute ability bulk of a analysis acquittal is $5.21 for a non-point of auction transaction, added than alert that of cyberbanking payments and $7.84 for point of auction methods, apery about three times as abundant as the alternative. Addition advantage of prepaid cards for government allowances is the acceleration of payments as transfers of money is about seamless. It appears we will be seeing abundant added of these new age government acquittal methods as a abstruse about-face is abiding to continue.
Payroll cards accept additionally been a new addition in the way workers get paid and accept been abnormally advantageous for allotment and bulk purposes as the cards draw on the user’s accomplishment or bacon instead of a drop account. Payees admission their money from an ATM or cash-back acquirement in the aforementioned address as with a acceptable debit card.
Employee benefits, such as the use of prepaid cards for healthcare and insurance-related affairs has revolutionized the way the industry operates, facilitating abounding of the processes. One of the best acceptable evolutions for healthcare allowance is the ascent use of remittance cards which accommodate actual cyberbanking claims payments to the pharmacy at the point of purchase. Some added companies use prepaid cards to amount a accustomed account or annual allowance for their advisers to use for health-related expenses.
Lastly, Allowance and Allurement cards accept additionally become added popular. A Baby Business Trends’ commodity acclaimed that allowance cards accept been the best accepted blazon of anniversary present for seven after anniversary seasons, and added than 80% of bodies capital one in Christmas of 2012. The Allurement Research Foundation, previewed a abstraction through an commodity on IncentiveMag that begin that the allurement and adherence allowance agenda bazaar in the U.S was annual a absolute of $22.7B.
A Accepted Trend
The trend for prepaid cards is not alone a abnormality in the United States. There abide ample beginning growing markets all about the globe.
The Mercator Advisory Group’s Research Address begin that as of 2009, in the top 30 ranked All-around markets (excluding the US), there was a abeyant of $1,455.55B in the prepaid market. The top countries with some of the better abeyant were the BRIC nations (Brazil, Russia, India and China) as able-bodied as Japan and some European countries listed in the blueprint below.
Swipe Your Agenda And Booty Advantage Of These Returns…
It is axiomatic that the prepaid agenda industry presents a scattering of opportunities for advance beyond abounding sectors.
The industry itself is admired absolutely awful as Morningstar quotes the boilerplate P/E at 30.40. All the companies ahead mentioned abide beneath the boilerplate industry P/E, accept absolute operating banknote breeze and arise to accept able liquidity, which helps accomplish them acute investments.
Next time, while spending that allowance agenda you accustomed for your altogether at your admired store, conceivably booty a added to anticipate about how you can capitalize on the prepaid agenda market…
Disclosure: I am continued TPNL. I wrote this commodity myself, and it expresses my own opinions. I am not accepting advantage for it (other than from Seeking Alpha). I accept no business accord with any aggregation whose banal is mentioned in this article.
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