Opinions
Jerome Hass
DirectCash Payments Inc
DCI-T
COMMENT
Sep 15, 2015
Stock price when the opinion was issued
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Has owned this in the past. Management continues to believe they can continue to pay the dividend yield of almost 12%. Payout ratio is very high, and the market doesn’t believe they are going to be able to continue to pay the 12%. This business is fairly tough and becoming more difficult all the time. It seems the company has been able to steady their numbers in the last couple of quarters. They’ll probably end up engineering the company so that it moves in a direction similar to something like what Davis Henderson (DH-T) did. At some point, they won’t be just ATMs, but will be in other areas as well. He would be fairly cautious on adding to your holdings.
Basically an ATM business for Canada, Australia and the UK. Just released results, which were decent. There was a little bit higher maintenance CapX in Australia as authorities had forced all ATMs to move towards EMB chips in the cards, so they had to upgrade their ATMs to make them compliant before the year-end. Payout ratio jumped up to 72% from FFO. Still a very cheap stock, trading at about 6.5X EV/EBITDA. A great, long term story. Dividend yield of about 11%.
Being acquired at $19 per share. He sold his holdings at that price. The reason it is trading so close to the takeout price is that they are going to continue to pay the dividend until it is taken out. If you get taken out on the last day of January, you could potentially have an extra $0.48 coming in. You also defer capital gains until the next fiscal year.
In the process of being taken over. He had been short when it was announced. The ATM business is shrinking in Canada and around the world. It is an arbitrage situation at this point. He would not recommend buying more here. It is not a great business and there are not good chances of another bid here.
Took it on the chin this summer, largely on concerns of what has been happening in Australia. Thinks these are mis-founded concerns. They introduced Tap & Go. Instead of using your credit card, and typing it in, you can just tap it in, which had a significant impact on the use of ATMs in Australia. Management estimates that there is about a 10% reduction in transactional volumes in Australia, so during Q2 they pushed about a 6% price increase in Australia, which helped to mitigate some of that slow down. Also, pushed through a 20% price increase in Canada, following suit of what the banks had done, so we are going to see the full impact of that in Q3. Thinks it is going to be pretty decent. The company is very cheap. Dividend is sustainable. At the end of the day he thinks this is going to be a great long-term performer.