It is estimated that by 2019, the value of mobile-based payments will surpass $142bn in volume in the US alone, up from around $50bn currently.
Whats more, even though the size of the US mobile-based payment industry is set to nearly triple over the next four years, at the peak mobile payments will only total around 1% of the $16trn US consumer payments market.
Over the past five years, Monitise has shown to me time and again that it cannot be trusted. When it 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 confidence in the company.
Moreover, City analysts believe that Monitise willcontinue 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.
Compared to Monitise,Paypointlooks to be a relatively safe bet. The company hasgrown steadily over the past five years. Revenue has expanded at a rate of 2.1% per annum since 2010, and margin improvements have helpedpush net profit higher by 12.1% per annum over the same period. Earnings per share have expanded at a rate of 11.9% per annum since 2010.
AndPaypointssteady earningsgrowth has translated into impressive returns for investors over the years. Since October 2010,Paypointsshares have returned 226% excluding dividends, outperforming the FTSE 250 by 169%. Paypoint currently supports a yield of 4.5%. Including dividends, the companys shares have returned 30.8% per annum since 2010.
Unfortunately,Paypointssteady growth and lucrative returns dont come cheap. The companys shares currently trade at a forward P/E of 15.9, but if you factor in the groups cash position of40m and return on equity of 35.7%, its easy to see that Paypointsshares deserve their premium valuation.
The same cant be said for Optimal. Granted, the companys growth has been explosive over the past few years. Revenue has increased at a compound annual growth rate of 42.5% since 2009, net profit has exploded over 4,700% since 2012, and shareholder equity has risen five-fold since 2011. However, Optimals return on equity is a lowly 6.2%, and the company doesnt pay a dividend.
Then theres the different nature of Optimal andPaypointsbusiness to consider.
Specifically, Paypoint is the UKs leading payment collection network used mostly for the cash payment of bills and services. The company bridges the gap between cash and non-cash payments, which means that Paypoint is uniquely positioned in the market. Optimal, on the other hand, is focused on the extremely competitive online payments space.
With new competitors like Apple Pay springing up almost every day, its difficult to assess how long Optimal can continue on its current growth trajectory. And with that in mind, Optimals premium valuation of 15.4 times forward earnings looks rich.
The bottom line
So overall, if youre looking to profit from the growth of the mobile payments market, Paypoint looks to me to be the best choice.
Investing in high-quality, cash-rich companies with a wide moat like Paypoint is the key to long-term wealth creation. It’s also the investment strategy favoured by billionaire Warren Buffett.
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