PayPoint makes progress towards profit targets

PayPoint (PAY) operates in a crowded field, but the payment services business has profited through FY2024 despite no shortage of competition and a strained consumer environment. The marked step-up in revenue partially reflects the acquisition of Love2shop, which was finalised in the early part of 2023. The integration process included the successful launch of new business initiatives, although the division experienced a weaker billings performance than anticipated over the second half. However, management points to a “strong pipeline of new business building into the current financial year”.

The group made progress towards its profit targets and initiated a three-year share buyback programme in the process. Cash profits were up by a third to £81.3mn – the target rate is £100mn by the end of the FY2026. PayPoint intends to hand back at least £20mn to shareholders over the next 12 months, although it’s conceivable that companies might recalibrate their buyback programmes if the tax treatment alters due to political change.

On a divisional basis, shopping net revenue increased by 3.9 per cent to £64.4mn, while e-commerce net revenue rose by 61.6 per cent to £11.8mn. On the debit side of the register, cash payments net revenue decreased by 2.5 per cent, but overall volumes held up better than many might have anticipated.

The group has completed an organisational review that was designed to simplify its business structure. Gross savings of around £4mn are expected. The scale of the business has changed, which encompasses a degree of risk, but these results suggest that management is coping well with the challenge. A forward rating of eight times FactSet consensus earnings is certainly not prohibitive, particularly given the prospective cash yield, but it would be prudent to assess the integration process further down the track. Hold.

Last IC View: Hold, 512p, 24 Nov 2023