Canaccord Genuity rasies target price on PayPoint

Canaccord said that following recent mergers and acquisitions, its in-depth analysis of PayPoint's upgraded portfolio suggested "early success" in the journey towards increasing focus on digital payments and services in order to outgrow the roughly one-third of revenues generated from declining cash transactions.

After high-single-digit net sales declines in the first nine months of 2021 due to Covid-19 and other factors, Canaccord now expects PayPoint to post broadly flat sales in its fourth quarter, followed by a return to growth in the 2022 full-year.

In the mid-term, the analysts estimate PayPoint's current portfolio can deliver "low-single-digit organic revenue expansion", driven by growth in card payments, parcel services, EPoS subscriptions and e-money.

"We see potential upside to this from successful cross-selling between PayPoint's ~28k convenience retailers and the recently acquired ~30k Handepay SME customer base. On our estimates, successful execution here could potentially add 5% to sales over time," said Canaccord.

The Canadian bank, which also stood by its 'buy' rating on the stock, highlighted that on a price-to-earnings ratio of around 11x, the shares were trading at the low end of their historic range and below lower-margin UK retailers.

"This depressed valuation in our view reflects recent sales declines but ignores our expected return to growth and the improving sales mix," concluded the analysts.