PayPoint

9% yield including specials

The story goes that PayPoint’s weak performance has resulted in demotion from the FTSE 250. Wrong. In the last two and a half years PayPoint has paid 211.5p or c. £140m in dividends. The outlook is complicated. We expect £3m of extra network costs this year. Yodel fees are a drag. Energy pre-pay and top-ups are structurally challenged. But net revenues/transaction are improving and opportunities include Collect+, MultiPay and PayPoint One. TP 980p based on a DCF, with an optimistic view of PayPoint One.

UK Mid Cap

BUY

Target price 980p
Publication price 914p

Next events
Trading update	25-Jan-2018
FY 2018 results announcement	24-May-2018

H1 a little ahead

Net revenues 4.6% ahead at £56.5m (vs Lib £54.0m)Adj PBT down 1.5% to £24.4mFD EPS up 1% to 28.9p (vs Lib 27.2p) despite Network costs

Lots of moving parts

Expect £3m more Network Costs
£1.7m of extra Yodel fees
But new carriers on Collect+
Growing revenues on PP1
MutiPay has doubled

FY 2018 FD EPS unch

No change to FY 18 EPS of 61.8p
53% H2 weighting conservative
2019 EPS reduced 2%
Expect FY net cash of £13m
Indebted in FY 20 due to specials

TP 980p based on DCF

212p of DPS over 2.5 years
TSR much better than share price
CY18 yield of 5.2% b4 specials
CY 2018 FCF yield of 6.6%.
14% discount to peer P/Es

Source: Liberum

Summary Financials & Valuation (£m)

FY - March year end

EV (CY)	16A	17E	18E	19E
Market Cap	623	623	623	623
Net Debt	-37.9	-18.0	-3.0	7.9
Pension & other adj.	0.0	0.0	0.0	0.0
EV	585	605	620	631

Valuation (CY)	16A	17E	18E	19E
P/E (x)	14.5	14.6	14.6	13.7
Div Yield (%)	4.9	5.0	5.2	5.3
EV/Sales (x)	4.7	5.0	5.1	4.9
EV/EBITDA (x)	9.9	9.9	9.9	9.5
EV/EBIT (x)	11.3	11.6	11.7	11.3
FCF Yield (%)	8.2	5.9	6.6	7.5
Price / book (x)	8.1	9.8	12.3	15.8

Summary Financials & Valuation (£m)

FY - March year end

Financials (FY)	17A	18E	19E	20E
Sales	124	120	123	130
EBITDA	59.7	61.8	63.1	67.3
EBIT	52.3	52.1	53.1	57.0
EBIT margin (%)	42.2	43.5	43.1	43.8
Net Interest	0.7	0.3	-0.1	-0.3
PBT	53.5	52.1	53.1	57.0
FD EPS (p)	64.3	61.8	63.1	67.6
- vs prior forecast (%)		0.1	-1.7	3.0
- vs consensus (%)		0.9	0.1	1.2
DPS (p)	45.0	46.4	47.7	49.2

Leverage (FY)	17A	18E	19E	20E
Net debt	-32.9	-13.1	0.4	10.4
Net Debt/EBITDA (x)	-0.6	-0.2	0.0	0.2
Net Debt/Mkt Cap (x)	-0.1	0.0	0.0	0.0

Source: Liberum, Bloomberg. Note: *The dividend yield excludes specials.

Joe Brent
+44 (0) 20 3100 2272
joe.brent@liberum.com

Tom Musson
+44 (0) 20 3100 2067
tom.musson@liberum.com

Rahim Karim
+44 (0) 20 3100 2271
rahim.karim@liberum.com

The story goes that PayPoint’s weak performance has resulted in demotion from the FTSE 250. Wrong. In the last two and a half years PayPoint has paid 211.5p or c. £140m in dividends. The outlook is complicated.

This document is a marketing communication and has been prepared and distributed by Liberum Capital Limited. It is not independent research prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to a prohibition on dealing ahead of the dissemination of investment research. For Reg-AC certification, see the end of the text. Liberum does and seeks to do business with companies covered in this communication. As result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. ^Completed when first distributed.