Opinions
Ryan Modesto
Tio Networks Corp
TNC-X
BUY
Mar 03, 2016
Stock price when the opinion was issued
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They have payment processing for people without bank accounts. People pay cell phone bills on the last day they are due in cash. They saw organic growth from their business. They just acquired a company and there should be synergies. They are now looking to acquire more businesses. They are coming up in the rankings and have broken out of a trading range. It could become more interesting from the street perspective.
Roughly a $200 million market cap company. They process about $80 million bill payments per year with a value of about $9 billion. Have significant business leverage. They’ve grown by acquisition. A recent 18% increase in sales, led to an increase of over 100% in free cash flow, earnings and EBITDA. They have an attractive 4.2% cash flow yield. Earnings estimates have increased 18% in the last 90 days.
Processes bill payments and has over 60,000 locations across North America. Also, has the back end to process that. It provides for people that live from paycheck to paycheck to make payments very quickly. Yearly earnings have grown 55% as of June 28. Reporting on Nov 22 with earnings expected to rise 34%. ROE is 16%. A relatively stable recurring business regardless of whether the economy is brisk or slowing. It should continue to do well.
Essentially processes utility bills, taking a processing fee off the bill. They partner with big utility companies such as Cricket Wireless. His big concern initially was customer concentration, but they have now done an acquisition that has been fully integrated with the company. They’ve really managed what he saw as a key risk, so they now have the potential where they can cross sell between the company they newly acquired. (Analysts’ price target is $3.09.)
This is becoming a bit of a FinTech play. They offer bill payment services for people in the US and people without bank accounts. People who don’t have bank accounts is actually a very big part of the world economy. This made a great acquisition last year. Stock continues to hit new highs, pretty much on a daily basis. The market cap is growing, so more people are interested in it now. Some of the easy money has been made, but it still has potential. Definitely has good characteristics.
This is getting taken over by PayPal (PYPL-Q). He was happy for his members that it was getting taken over, but the premium looked a little light. It is fully valued now as far as the takeover price goes. If you see other opportunities that you want to invest in, he feels you could move on from this name. On the other hand, there is nothing wrong with just waiting until the transaction is completed.
A bit on the higher risk end of companies. The business is interesting. They serve the un-banked and under-banked demographics, i.e. people who either don’t have enough money to justify having a bank account, don’t trust financial institutions, or vice versa. Located in the US and is something like a reverse ATM. People can pay their phone and utility bills at one of these machines. There is really good growth behind this company. Not very expensive. They are going through a big acquisition called Softgate Systems, which is going to bring their revenues to $100 million a year. The big risk is that they have a very large single customer concentration, and if they lost that customer it would be a very big problem.