Optimal Payments(LSE: OPAY) is falling again today, taking the companys decline over the past week to a staggering 27%. Indeed, a perfect storm of bad news has engulfed the company over the past few months and it seems as if theres nothing management can do to stop shareholders deserting the company.
That being said, in many ways its the companys management that hasbeen responsible for the deluge of bad news.The problems stem from share dealings carried out by the groups CEO during April of this year. Similar to the deal Quindell had in place, Optimals CEO pledged 38% of his entire shareholding with Equity First Holdings for 4m in cash. This was around 30% below the market value of the shares.
Nasty surprise
As it turns out, this deal was not a simple loan in return for shares. The terms of the deal meant that Optimals CEO essentially disposed of his shareholding at a 30% discount to market value. He has pledged to buy the shares back, although if they fall to a certain level, hes under no commitment to repurchase. Essentially, this means that Optimals CEO dumped nearly 40% of his shareholding at the beginning of this year.
Perhaps the market would have forgiven management if they explained the deal straight away but it took Optimal several months to clarify what had actually occurred.
And it seems as if the market no longer trusts Optimals management. Are they withholding any more information from shareholders?
Since the EFH deal was revealed, Optimals shares have declined by more than 21%, the company has lost,its CFO (he was quickly replaced) and it was revealed today that the groups fourth largest investor,Kames Capital, had begun to sell down its stake in the company. Todays announcement shows that Kames reduced its interest from just under 6% of Optimal to around 4.5%.
Underlying performance
Still,Optimals underlying business performance remains robust according to management. In a trading statement issued yesterday the group announced that:
trading in the year to date has been strong and expects Optimal Payments financial results for 2014 to be at least in line with market expectations
The City currently expects Optimal to report earnings per share of 24.4p this year and a pre-tax profit of 45.2m on revenue of 232m.
Based on these figures Optimal is currently trading at a forward P/E of around 12 an attractive valuation.
Whats more, Optimals earnings are expected to expand a further 22% next year, which implies that the company is trading at a PEG ratio of 0.5, offering growth at a reasonable price.
The bottom line
So, on fundamentals, Optimal looks to be a great pick. However, it remains to be seen if the companys management can be trusted. It will take time to rebuild confidence.
But overall, it’s your decision whether you decide to buy, sell, or hold Optimal. You should always conduct your own research before making a trading decision.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
