Until the 9th of September, I was relatively optimistic aboutMonitises(LSE: MONI) future.
However, when the company warned alongside its full-year 2015 annual results that it was going to miss forecasts once again next year, and the companys experienced CEO, Elizabeth Buse, was leaving after only a few months on the job, I lost all my confidence in Monitise.
Losing confidence
For full-year 2015, Monitises revenue declined 6% to 89.7m. The groups loss before exceptional items, depreciation, amortisation, impairments and share-based payment charges (EBITDA) totalled 41.8m. Including impairment changes and other factors,Monitise reported astatutory loss after tax of 224m.
Whats more, Monitise now expects revenue to decline further during 2016. However, management still expect the group to report a positive EBITDAfor full-year 2016.
Unfortunately, its no longer possible to trust these predictions from the company. City analysts believe that while Monitise could reach EBITDA profitability next year, the group will continue to report hefty statutory losses for the foreseeable future. Current forecasts suggest the company will report an operating loss of 61m for 2016, 54m for 2017 and 54m for 2018.
That being said,EBITDA is often used as a proxy to indicate cash flow. And if Monitise does move to EBITDA profitability next year, the companys rate of cash burn could slow, which would give management more time to instigate a turnaround.
Still, now that Monitises growth has come to a halt, management will find it harder than ever to turn the company around.
Surging ahead
As Monitise struggles,Optimal Payments (LSE: OPAY) is surging ahead. Indeed, unlike Monitise, Optimal is cash-generative, growing rapidly and has a strong cash balance.
For example,for the six months ended 30 June 2015 Optimals salesincreased 40.2% to$223m. Adjusted profit before tax rose by 18.7% to$37.3m anddiluted earnings per share increased 11.4% to $0.12.Excluding cash raised through Optimals rights issue, group cash at period end amounted to$113.3m.
Optimals deal to acquire its money transfer peer Skrill should start to show through in the companys earningsduring the second half of the year.
City analysts expect Optimals earnings per share to fall by 6% this year, due to acquisition costs and the higher share count a result of the rights issue used to fund the Skrill deal. Nevertheless, after Optimal completes the integration of Skill, which should take place next year, Cityanalysts expect the companys earnings per share to jump 26%. Further, group costs should fall as merger synergies flow through, improving Optimals profit margins and cash generation.
Based on current City figures, Optimal currently trades at a forward P/E of 18.1 and 2016 P/E of 14.2. And according to these numbers, Optimal trades at a PEG ratio of 0.5 for 2016, indicating that the companys shares offer growth at a reasonable price.
The bottom line
So overall, as Monitise continues to disappoint,Optimal is pushing ahead. For this reason, investors should sell Monitise and buy Optimal.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.