Interactive Investor

Insider: this payment firm’s bosses are loading up on shares

16th August 2021 10:38

Graeme Evans from interactive investor

The directors of PayPoint have been making some interesting share buys of late.

The boss of PayPoint (LSE:PAY) and another director have bought shares worth £125,000 after the payments firm appeared to draw a line under a long-running regulatory investigation.

Shares gained 8% in a week when Ofgem said it was minded to accept undertakings from PayPoint in order to address competition issues in the energy pre-payment market.

The regulator opened its investigation back in August 2017 and issued a statement of objections in September 2020 relating to concerns that PayPoint's exclusivity contracts with energy suppliers and retailers may have distorted competition and consumer choice.

PayPoint has since offered to remove the clauses from current and future contracts and will make a £12.5 million donation to Ofgem's energy industry redress scheme to support vulnerable consumers. The regulator is consulting on the proposals over the next month.

Analysts at Jefferies said the provisional decision by Ofgem removed an overhang for the FTSE All-Share stock that should mean it regains its pre-September 2020 levels, particularly in light of a subsequent rebalancing of the business due to a flurry of M&A activity.

Jefferies has a price target of 820p, which compares with Friday's close of 642p and the 635p at which chief executive Nick Wiles bought his £95,000 worth of shares earlier in the day.

Wiles, the former chairman of UK investment banking at Nomura, has been a board member since 2009 and the company's chief executive since May 2020 after serving as chairman for five years from 2015.

His most recent update on trading at the end of July revealed significant progress on positioning PayPoint for growth opportunities, including through the acquisition of RSM 2000 in digital payments and the £6.6 million deal for the Snappy Group home delivery business.

The company's core business of 30,000 sites within convenience stores and other SMEs allows consumers to pay a range of bills, top up mobile phones, and buy transport tickets using cash.

This payments and banking division grew revenues by 0.8% to £12.9 million in the June quarter, but it has been overtaken by PayPoint's shopping division, which provides card payment systems, ATMs and store management tools for retailers across the UK. There's also a division based around the parcel collection and delivery service, Collect+.

Overall revenues increased by 21.3% to £28.1 million in the most recent quarter, with the shopping division up 45.5% to £14.1 million following the positive early contribution from its recent Handepay acquisition.

The Ofgem development is set to open up PayPoint's contracts to more competition, most probably from the Post Office, but broker Liberum believes the impact is unlikely to be material.

Liberum analyst Joe Brent said last week: “We believe that this issue has weighed heavily on the share price, so increased certainty should be well received.”

He believes a multiple of 11.1 times 2022 earnings is attractive given the cash generation and growth opportunities ahead, as well as a potential dividend yield of 7%. The company recently declared a dividend for the year to March of 16.6p a share, which has been broken up into payments at the end of July and September.

Brent, who has a 1,000p target price. said: “As the growth parts of the business start to dominate, we believe that operational gearing will start to come through. The risk to some is that private equity will recognise this before public markets.”

As well as Friday's share purchase by Wiles, card services director Mark Latham bought shares worth £30,000 on the same day.

Kingswood sees more buying

Wealth management business Kingswood Holding (LSE:KWG) has seen more boardroom buying of its shares after chief executive Gary Wilder made a purchase worth £46,500 on Thursday.

The AIM-quoted company, which has £6.1 billion of client assets under advice and management, also disclosed that Michael Nessim bought shares worth £14,000 on Tuesday in the latest purchase by the head of its operations in the US. Several other purchases have been made in the past month, including by a person connected to chairman Buzz West.

West recently revealed significant progress on US expansion and on acquisitions in the UK, where the retail business now operates from four regional hubs and has 11 branch offices with 61 financial advisers and investment managers serving about 8,000 active clients.

Group revenues for last year were £25.5 million and operating profits jumped to £900,000.  Shares have rallied from 18p in February to close last week at 31p, which is the point where Wilder made his purchase.

Supported by growth capital from Pollen Street Capital, he has pledged to capitalise on consolidation and acquisition opportunities..

However, he added in June: “Disappointingly, Kingswood remains significantly undervalued relative to its fully integrated peer group and wealth managers in general.

“A major focus of myself and the board in the coming months is to develop and deepen our shareholder register and to remain completely focused on executing our organic and inorganic growth strategy at pace.”

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