RE: Share magazine6 Dec 2013 09:32
Touch down at Earthport
Nascent low-value payments opportunity is ready to mature
The growth potential of the payments industry could provide substantial revenues, profits and share price gains for emerging specialists able to stamp their mark on this niche space and Earthport (EPO:AIM) could be one of them. The shares could double to around 50p in 12 to 24 months and then go higher still.
Earthport offers an automated platform that seamlessly handles payments across international borders, called remittances. Pitched to handle payments from $100 to $100,000, this is an exciting opportunity thanks to increasing international trade and growing migrant workforces who need easy-to-use, cost effective and secure payment applications. The £93 million cap’s white-labelled platform provides an instant and automated transfer validation service using ‘pooled funds’ across a rapidly expanding global network of financial institutions and businesses. It strips out often hefty bank ‘lifting’ charges and tackles reliability issues too, as evidenced by a transaction failure rate of just 0.1%, compared to a typical 14% with the banks. The £6.4 million acquisition of foreign exchange business Baydonhill this year adds currency handling too.
Out with the old
For years Earthport failed to carve out a niche in the international payments market, earning a reputation for cash calls and share price disappointment. All that changed when Hank Uberoi arrived early in 2010. After a strategy overhaul under the former Goldman Sachs (GS:NYSE) technology boss the company is now closer to fulfilling its undoubted promise.
A substantial blue-chip customer base already includes Bank of America (BAC:NYSE), Yandex (YNDX:NDQ), American Express (AXP:NYSE) and HyperWALLET. A further client is Western Union (WU:NYSE), the biggest money transfer business in the world with $270 billion in annual transactions. Although most of that is cash-to-cash and outside of Earthport’s account-to-account remit, Western Union is seeing its account-to-account business grow rapidly. A mere 2% of Western Union’s total book would still imply $5.4 billion of transactions for Earthport to target.
Heavyweight institutional shareholders include Henderson Global Investors, BlackRock and Schroder Investment Management, who have stakes of 13%, 7.9% and 7.7% respectively. In May the International Finance Corporation, an arm of the World Bank, invested $10 million for a 9.1% stake at 18.6p. The shares have run 29% up since then.
Pump up the volume
Last year to end June, 21 new clients signed up to the Earthport platform. Thirteen went live with another seven thought to be close. We expect a busy next few months of new customer sign-ups, perhaps including US credit card giant Mastercard (MA:NYSE).