Member Info for skittish

Mastercard cross border volume up 17% Q3 yoy and 19% ytd.

https://s2.q4cdn.com/242125233/files/doc_financials/2018/Q3/3Q18-Earnings-Release.pdf

Mastercard cross border appears to be running approximately almost 20% vs 10% for Visa.

Question is how much of that goes through Homesend?

Subject to products existing before 2014 Homesend is the preferred gateway for Mastercards global remittance services.

Looks good for future growth.

As for the takeout price - I wouldn't even want to hazard a guess - too many variables - but hopefully considerably north of the present share price.

But I expect considerable general market volatility to continue. So maybe not good for the sp short term.

Visa has reported cross border volumes up 10% in Q4 and for the year overall.

Lets see if Mastercard beats.

"Hold" is due to the choppy markets.

cont/ their share of Homesend, but I can't as yet find further details.

What is available on the web shows that Mastercard send continue to hire at senior level, and the 50M euro total investment is significant.

Of course it is only in the last 12 months or so that significant players have been signed up to Homesend, and none of these actually appear fully "live" as yet - maybe the funding will clear the way for that.

But overall I see this as the opportunity for a tiddler to piggyback on a giant, and reap the rewards for the technology they developed. It can't have been easy hanging onto their share of Homesend so hopefully they will reap the rewards in time.

The institutions will have dome some due diligence so I remain reasonably confident - but then of course they are not always right.

Hopefully we will have evidence of real traction by year end.

I'm not sure whether the core business will be sold within the next 8 weeks or so - the 8 week update is one the "status of conversations".

What they'll get for the core business is debatable - it has been consistently unprofitable, although any increase in revenue appears to flow straight to the bottom line and could be an interesting acquisition for a suitable buyer, if they were able to strip out the PLC costs and boost its income.

See page 12 of this recent presentation.

www.eservglobal.com/wordpress/wp-content/uploads/2018/09/201809_Capital-Raise-Presentation.pdf

Despite supportive institutional shareholders the market seems distinctly unimpressed with recent events - as the present market cap following the funding is back roughly to where it was a few months ago at £80 million, and that is after the £19m fundraise.

I am however an optimist on ESG and Homesend.

Pages 16,17 and `18 of the Presentation contain details of the obligations of the two parties - so ESG does have some protection which is presumably enforceable through the court system.

I'm a little unnerved by the fact that the collaboration agreement is under review, (although not for the first time and presumably the review will have to be carried out in "good faith") but this part of the agreement, to me, appears to make it very valuable to ESG -

"Subject to various exceptions including Mastercard products existing at the inception of the Collaboration Agreement, Mastercard is obliged to:
 Refer to HomeSend as Mastercard's preferred supplier of of cross border individual to individual remittance money transfers together with
related inter-payment service provider settlement (HomeSend Remittance Services);
 Use commercially best efforts introduce and offer HomeSend Remittance Services and co-operate with HomeSend in the delivery of the
HomeSend Remittance Services; and,
 Use commercially best efforts to use the HomeSend platform as the global technology gateway for Mastercard's global remittance services, such
as Mastercard Send.
 Not compete with the HomeSend Remittance Services."

i do think Mastercard have probably tried to wrestle a share of Homesend from ESG by means of the funding requirement - it must have been quite an achievement for ESG to raise £19m at fairly short notice.

As for what ESG are (or have been) able to contribute - this must be the original technology (I read somewhere it is blockchain) - which appears to be all the rage at the moment) - so effectively they've made their contribution, as Mastercard have been building Mastercard Send on the back of Homesend for the last 3-4 years.

ESG is protected by the two thirds majority required to approve key corporate decisions, although the reduction in the Board size from 6 to 5, following the departure of BICS does weaken their position at Board level.

BICS is a division of Proximus and their latest quarterly report shows that they took a loss of 2m euro on the sale of

And on the subject of BICS, they didn't take part in the earlier fundraising (October 2017) this reducing their stake to around 8.69%. no explanation given but I believe it didn't fit in with the overall strategy of the company which appears to want to be more customer focused.

I've looked, but can't find out how much they sold it for. Maybe hidden in the accounts somewhere, when they are published.

Mastercard valued the Homesend JV at around £37m for accounting purposes when the previous fundraising took place implying that HS was worth that at that time, although ESG were at pains to suggest it was worth much more than that - how much more no one was saying.

If the JV were worth £37M then the 8.69% share would have been worth about £3.21M. ESG would have first call presumably on their % of that so as to maintain their relative %, and possibly get the BICS seat on the Board, making it 3/3 - for around £1.15M.

I've speculated earlier that maybe ESG couldn't raise that money, but that can't really be the case. Until last year they had much higher borrowings, and had a bit of cash to hand anyway, so I can't see why they couldn't have gone ahead with that. The recent documentation reveals that if ever ESG were to sell Mastercard have first call, so that must have been the case with BICS also.

So either ESG weren't bothered about getting 36% of the BICS 8.69% for £1.15M - can't see that.

Or they couldn't raised the money by short term borrowing - as they've just raised £19M - can't see that.

Or BICS had to be paid much more than the accounting value of £3.21M - and that is why ESG couldn't buy out their share, it was simply too much to raise at that time.

The figure may be hidden in the BICS or Mastercard accounts when published - we don't even know when it happened - just sometime in H1 2018 - but that would actually establish an agreed value for the whole of Homesend as at H1 2018, which in turn would be important for establishing the true value of ESG.

I thought you might be onto something there Cabpussy, as the rate of significant signings appears to have declined markedly over the last year of so.

However countering that is the competition Mastercard faces from the likes of Visa, and various other start ups in the payments market.

Would they really go slow on Homesend just to get ESG's share cheaper, whilst allowing the competition to gain a lead?

However, where I agree is that Mastercard do play hardball when it comes to funding. ESG (present market cap £64M) raised £24M only 12 months ago, and now they're raising another £19M - total £43M in 12 months. Mastercard must have been counting on them being unable to do that and having to relinquish a significant part share in Homesend.

In the original fundraising only around £3M went to Homesend, now they're putting in around £16M.

Hardball worked partly in relation to BICS, who would have had to offer up part of their c8% share to ESG when they sold that earlier this year (no details on that forthcoming) - clearly there was no appetitite from II's for ESG to fund that - hence no fundraising then and Mastercard were able to snaffle all of the BICS share.

The presentation which accompanies the fundraising also contains "new" details on significant protections for the ESG shareholdings - ESG now has 2 of the 5 directorships on the Board.

New details also specify that Homesend capacity will increase from 16 banks pa to 48. Maybe this has been the constraint on new signings - doesn't say what size these 16 are - maybe if that is mid sized banks, than the signing of Standard Charted in October 2017 ( 46th largest world bank), Wells Fargo in December 2017 (11th largest world bank), and unnamed bank in March 2018 (in top 10 in world) has used up all their capacity and resources over the last 12 months - hence no other significant signings over the last 12 months.

With this fundraising those constraints will disappear. It also suggests that those large banks have been successfully integrated with the Homesend network.

And the recent hirings by Mastercard Send - a VP, several directors and numerous managers ~ (as detailed in my previous posts) do suggest that worldwide expansion is ongoing.

The only downside is that this fundraising is going ahead at 6p, whereas before it was 9p, but I guess that is the dynamics of the present market. And I guess further fund raising cannot be ruled out in future.

Still "jam tomorrow" - but when it does come it could be spread rather thick.

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2:45 pm - 28 Sep 2018

On twitter-

Studio Gobo
‏

"@StudioGobo
24h24 hours ago
We're sorry to hear the bad news guys 😔 For any Telltale folk that have been affected by this, we're currently scaling up for two huge projects and would love to hear from you"

despite the share price being bashed downwards (yet again) Mastercard Send appear to be continuing something of a recruitment drive - all jobs advertised within the last month

Director, Mastercard Send Product Management

www.businessworkforce.com/jobs/director-mastercard-send-product-management-o-fallon-mo-63368-723656960-job.html

Manager, Mastercard Send Product Management

https://www.application.careers/jobs/manager-mastercard-send-product-management-33243379

Director, Mastercard Send Compliance

https://www.prodivnet.com/jobs/director-mastercard-send-compliance-lead

Manager, Market Product Management Send Cross Border - Product Development and Innovation Asia Pacific

https://mastercard.wd1.myworkdayjobs.com/CorporateCareers/job/Singapore/Manager-Market-Product-Management-Send-Cross-Border_R-71325

This last post appears to expansion into Asia Pacific as it is based in Singapore, which would be directly relevant to Homesend

This is also interesting -

https://marketrealist.com/2018/09/mastercard-sees-larger-opportunity-in-b2b-payment-space

"Looking at the immense opportunities available in the B2B payment market, Mastercard (MA) is enhancing its capabilities with new solutions such as Mastercard B2B Hub, Mastercard Send for cross-border payments, and real-time account-based payment systems for ACH transactions."

A bit frustrating to see ESG so unloved, and unappreciated, but maybe a top up opportunity?

Interesting jump around midday, after flat-lining for a while.

As there appear to be few sellers about it could herald a significant move upwards.

Super H1 results - but the share battered down.

Maybe because good results flagged previously?

No matter as value will out in the end.

Chance to pick up a few more.

Revenue 264,099 211,564 25%

Gross profit 42,879 32,433 32%
Gross profit % 16.2% 15.3%

Operating profit 11,026 8,729 26%
Adjusted operating profit 13,452 10,533 28%
Adjusted operating profit % 5.1% 5.0%

Profit before tax 11,854 8,033 48%
Adjusted profit before tax 13,030 10,253 27%
Adjusted profit before tax % 4.9% 4.8%

Profit after tax 9,118 5,812 57%
Adjusted profit after tax 9,783 8,032 22%

Reported EPS 11.32p 7.04p 61%

Adjusted EPS 12.09p 9.84p 23%

Interim dividend per share 4.60p 4.17p 10%

- Yes, fantastic figures.

And current trading is ahead of expectations.

Given time this should become a multi bagger.

------------------- ---------------- --------- ---------
Group revenue GBP16.5m GBP10.8m 53%
EBITDA GBP7.4m GBP4.5m 64%
Profit before tax GBP7.3m GBP3.6m 103%
Net cash GBP7.5m GBP3.4m 121%
Earnings per share 14.10p *6.59p 114%
Dividend per share **11.25p *7.19p 56%

The Times Market Report today. I expect normal Softcat service to be resume in due course.

"Downbeat remarks in a trading update from Sage, the FTSE 100 accounting software group, unsettled investors in the group and its peers. Sage tumbled 50¼p, 7.8 per cent, to 595½p after announcing the departure of Stephen Kelly, its chief executive. Computacenter, the IT services provider, footed the FTSE 250 after falling 64p, or 4.5 per cent, to £13.56, while Softcat, an IT reseller and services provider, dropped 38p to 850p"

https://www.softcat.com/news/softcat-eyes-international-expansion-with-first-overseas-office/

Office in Dublin - English speaking and in the EU!

The Times Market Report today -

"There was something of a hard landing for investors in Softcat yesterday. Despite its best efforts to ride a wave of investment by companies in in new or updated technology and its own sunny forecasts of more to come, the market could see only clouds, in the form of a weaker sterling and downbeat economic data.

There has been little cause for concern surrounding Softcat of late. Shareholders have been purring as it more than doubled its share price over the past year, propelled by a surge in mid-sized company clients upgrading IT systems and strengthening their security software. In a trading update last month, it said that market conditions had been “very favourable” and that it expected full-year 2018 adjusted operating profit to be “materially ahead” of its previous expectations.

Yesterday, though, analysts were warning that Softcat could be affected by a fall in the value of the pound, which reached an 11-month low yesterday, as the company buys much of its products from companies overseas, such as Apple. Fears of a no-Brexit deal and weaker data for July from the domestic services and manufacturing sectors, not positive in terms of its British-based clients, didn’t help, either.

All of which meant that the “sell” case outweighed the “buy” argument and sent shares in Softcat down 42p to 795p."

Still a hold for me - presumably they deal with an element of currency risk in the normal course of business.

doze - of course no investment advice intended!

And ESG overall, has been something of a serial disappointment really - so a bit of a leap of faith required.

But to me, with the little information available, it does appear that progress is being made, although as with any technology, it could be overtaken by something else that cannot be presently foreseen.

And yesterday and today, still what appears to be the steady drip drip of pi sells.

But neatly balanced out by an RNS of an increased holding by Commonwealth Bank of Australia buying 8,033,503 shares, or just under 1% of the issued share capital taking their holding to 49,235,695 or 5.43%.

So the institutions appear to be continuing to mop up the weak pi holders.

Yes, I think there is certainly an element of that.

And technology is moving so fast it will be difficult to tell what will actually come out on top.

One of my concerns would be that the tech developed by ESG would be overtaken by something else.

After all the link with Mastercard was made some 4 years ago and only now appears to be taking off.

But on the flip side Mastercard appear to have all the business infrastructure in place to make this work, and banks generally are very conservative, with good reason, so would probably prefer to link with a well known entity rather than a complete newbie.

Mastercard Send offers to connect any customer anywhere in the world to any other customer anywhere in the world (cardholders or not) using any device at any time. Not many can match that - and Homesend is a part of that offering.

And of course Homesend only get the international remittance part of Mastercard Send (whether just some some or all isn't entirely clear- all appears to be it).

Interesting that Mastercard international payment were up 19% vs 10% for Visa in the last quarter.

But Mastercard Send have certainly boosted recruitment for executive positions over the last few months - so they do appear to be gearing up for expansion.

But this is certainly a slow burner.

As I speculated yesterday the institutions appear to be taking up the slack with the steady drip drip of bored/frustrated pi sellers - RNS today indicated Odier yesterday had bought just under 9M shares, or 1%, in May it was M&G increasing by 17M or around 1.6%.

That at least appears to have put something of a floor under the share price at around 8.5p (last fund raise was at 9p).

I'm not so naive as to expect this to rocket any time soon, but I suspect when it does finally start moving I expect a big leg up with very little to stop it.

All IMHO, DYOR etc.

Still a few drip drip sells this morning although the price is holding up.

The new information on Homesend is interesting though.

Up to June 2017 Mastercard Send had generally signed up either niche payers, such as the Red Cross or fairly obscure banks (to me anyway) in the Far East, Africa and Eastern Europe.

In June 2017 they signed up Allianz Global, the German insurance giant, in October 2017 they signed up Western Union and then Standard Chartered (46th largest bank in the world), December 2017 Wells Fargo (11th largest bank in the world), March 2018 an unnamed bank, but described as one of the worlds largest financial institutions -assuming it isn't the aforementioned Wells Fargo.

The top 10 are 4 Chinese Banks, followed by HSBC, JPM, BNP, Mibsbishi, B of A and Credit Agricole. I'd go for HSBC (5th in the world), but no doubt all will be revealed when it goes "live" around September.

As it appears to take 6 months for these deals to go live the figures from Homesend only include the smaller obscure banks signed up pre mid 2017.

None of the "biggies" have been taken into account in the figures, and their volumes individually could be greater than all the smaller banks and institutions signed up pre mid 2017.

Unfortunately we may not get any new figures for Homesend for another 11 months or so, but we should get more figures for Mastercard Send international remittances within 3 months.

So I think lots to look forward to here over the next 12 months or so.

If Homesend costs are kept down, then I think profitability could come quicker than was anticipated in the recent statement.

Will continue to top up as and when.

Excellent news - firing on all cylinders.

Revenues could have been up almost 80% if it wasn't for the declining $!

"The Group has performed strongly during the first half, with preliminary unaudited revenues for the period expected to be up by 72% to EUR109.9m (H1 2017: EUR63.8m) and an anticipated 66% increase in adjusted PBT* to EUR15.9m (H1 2017: EUR9.6m). This was achieved despite the incorporation of the historically lower margin VMC business, as well as a marked weakening of the US dollar, in which approximately 60% of the Group's revenues are denominated, against the Euro with average exchange rates having declined 12% between the comparable periods."

The time to buy was when ESG was 2p - they didn't so maybe there were no willing sellers at that time.

2.3M buys to 6.7m sells today and the price goes up, and on a day when many shares have been plastered.

So someone somewhere must be buying.

Pi shares being transferred to institutions?

We'll see.