Planet Payment (PLPM) delivers innovative payment processing solutions that solve many of the challenges facing today’s global electronic pa...

Weekly Superstock Scan 28 Mar 2016 - 1 Apr 2016

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Planet Payment (PLPM) delivers innovative payment processing solutions that solve many of the challenges facing today’s global electronic payments industry.  They deliver payment processing and multi-currency solutions to 71 financial services institutions around the world. Their services are currently deployed at 118,000 active merchant locations in 21 countries and territories across the Asia Pacific region, the Americas, the Middle East, Africa and Europe.

 The Company manages its business through two segments: Multi-currency processing services and payment processing services.



You can view the videos below for more information on Pay in Your Currency®, Planet Payment’s premier Dynamic Currency Conversion (DCC) service, and DCC at ATMs,



Techical


Price Breakout on Earnings Release
PLPM was trading in the $2.50 - $3.10 box since August last year. When PLPM announced its Q4 result on March 2016, price finally broke above the box with strong volume. In the following two weeks, volume start to decline steadily and price closed in a tight range between 3.42 - 3.46. Even on a daily chart, prices are going nowhere since the 10th March. These are signs that it may be time for the stock to surge again and quiet trading presents low risk entry.


Fundamental




Strong Earnings Even After Accounting for Income Tax Benefit

The 267% y-o-y growth in EPS for Q4 2015 looks great. However, if something is too good to be true, it usually is. The high EPS is inflated by a net benefit to our income tax provision of $4.8 million due in large part to the reversal of a portion of their deferred tax asset valuation allowance.

After adjusting for the provision for income tax, interest expense/income, depreciation and amortization, stock-based compensation expense and restructuring charges, adjusted EBITDA grew 13% year on year from 3.5 million to 3.9 million

New Markets

If you read the press release or transcript of PLPM, you would know that PLPM is capable of sustainable growth with new customers, new products and new processes.

For their Multi-Currency processing segments, PLPM has signed contract extensions with many of their key acquirer customers, as well as expanded into several markets including Malaysia, Kenya, Mexico and Canada. Their partner in Brazil, Cielo, has made significant software changes which led to significant increase in DCC Opt In Rate. This is a timely upgrade before the Brazil Olympics when foreign transactions are expected to surge.

On the payment processing front, PLPM has made progress on UnionPay's online payment eCommerce solution or UPOP. PLPM is one of the companies that can offer UnionPay solutions for U.S. and Canadian merchants to tap into the burgeoning Chinese eCommerce market. This solution is a key factor for the growth of revenue in the payment processing segment.

Implementation of DCC at ATMs

DCC at ATMs is PLPM's newest component of their multi-currency product sets. PLPM continues to support the rollout of CCC with their ATM processing partners both within Americas and Outside Americas. ATMs are efficient distribution channel for their DCC solution since no initial or merchant training is required. It is an offering that is gaining traction and will be an increasing contributor of transaction volume and revenue in the near-term.

Operating Leverage

PLPM has a low variable cost relative to fixed costs. SG&A expenses remain constant at about 20 million from 2013 to 2015 while revenue increased by more than 6 million during the same period of time. As the revenue increases due to the factors above, PLPM should be able to earn higher margins and enjoy high earnings growth.


Risk Factors/ Things I do not Like

  • High Valuation - Based on 2015 income excluding provision of income tax, the adjusted EPS will be $0.10. At the current price, PLPM is trading at close to 35x P/E. By using an annualised adjusted Q4 earnings, PLPM is still trading at a high P/E of 30x. A superstock requires both increase in earnings and increase in P/E ratio to achieve superperformance. Starting with a high P/E ratio, it will be harder for PLPM be a multi-bagger.
  • Large Float - PLPM has a large float and a low average volume. It is tough for price to move significantly without a surge in volume.


Potential trade setup


With tight bands on relatively light weekly volume, the stock is ripe for buying. A temporary stop loss at the start would be below the low of the candle 2 weeks ago at 3.28. Should the moving average catches up, the stop can be shifted accordingly.  

Due to the high valuation, I am likely to enter with a smaller position.

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ATSG (Posted on 13th Mar Watchlist)
Amazon exercised its option to purchase just under 7.1 million shares of Air Transport Services Group stock, which translates into a 9.99% ownership stake in its newfound air freight partner. ATSG remained very overextended. No low risk entry in sight.

SNC (Posted on 6th Mar 2016 Watchlist)
A significant pullback, but still far from low risk entry.

BHQ.SI (Posted on 28th Feb 2016 Watchlist)
Price has moved more than 15% since I initiated coverage, without me.

JRJC (Posted on 14th Feb 2016 Watchlist)
Looking to buy at upward trendline and 10wMA in the 4.90 region. Stock appears to have lost momentum.

EDUC (Posted on 24th Jan 2016 Watchlist)
Entered @ 9.95

VRA (Posted on 11th Jan 2016 Watchlist)
Entered @ 14.4. 5 weeks without touching 'magic line'. Strong resistance at 20, might take half off.






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