Thursday July 17, 06:27 PM
Small talk: Planet aims for global card processing market
LONDON (ShareCast) - Philip Beck believes that the turmoil in the banking sector could be good news for Aim-quoted credit card payments processor Planet Payment Inc (LSE: PPTR.L - news)
.Planet's chairman and chief executive thinks that the banks will increasingly consider outsourcing their non-core activities and Planet is in a strong position to handle multi-currency payment card processing. Its systems can be easily integrated into the card transaction flow. Consumers like the service because it tells them what they are paying in their own currency. Bank customers already include Standard Chartered (LSE: STAN.L - news) , Agricultural Bank of China, Barclays (LSE: BARC.L - news) , HSBC (LSE: HSBA.L - news) . The businesses that use the company's system include many upmarket hotels, such as Marriott, Swissotel and the Dorchester, airlines, restaurant groups and major brands, such as Montblanc and Cartier. Planet's strategy is to target the big multinational businesses and brands. New York-based Planet generates at most a few pennies for each transaction, whatever the size of that transaction. That means that transaction volumes are the key to increasing revenues. The drivers of transaction volumes are in Planet's favour. Credit and debit cards are increasingly being used around the world. There were 64bn card transactions in the US, Europe and Asia Pacific in 2006 and this figure is expected to increase to more than 110bn in 2012. Annual growth in card usage in Asia Pacific is forecast to average 20% between 2006 and 2012. Even the US and Europe are expected to grow by 8% and 11% a year, respectively. Increasing international travel is boosting demand for multi-currency processing. Total international transactions were estimated at $206bn in 2006. The currency conversion margin tends to be around 3% so this means that the potential market could be worth $6bn a year. This type of revenue could be shared between the bank and Planet. Historically the US was the main market for the company but Asia Pacific is growing fast since Planet entered the region in 2005. By the middle of 2006 Asia Pacific was already outstripping the US in terms of multi-currency transaction volumes and it now accounts for around three-quarters of them. Europe is also growing but it is lagging behind. Beck would like to increase exposure to Europe and he is talking to potential European bank customers. Earlier this year Planet acquired iPay, an ASP-based ecommerce processing services provider. It generated $7m to annual revenues. Given that Planet paid $1m for iPay which had been sold a few years earlier for more than $30m it looks a good buy because it provides new customers and services for Planet. The business provides merchants with a billing engine, risk management, web-based information and other services. Planet's revenues grew 229% in 2007 but costs also rose so the loss increased to $13.4m. Revenue more than doubled in the six months to June 2008 and transaction volumes increased 64%. The inclusion of iPay helped to boost revenues and that is why they grew faster than transactions. US broker Ladenburg Thalmann (LTS - news) forecasts 2008 revenues of $42.7m, rising to $79.8m in 2009. Planet is expected to reduce its loss this year and could move into profit in 2009. The outcome will depend on whether the cost base is increased by investment in new markets. Beck believes that there is sufficient cash in the balance sheet but there might be a need for more cash if there is additional investment in additional markets or products. Longer-term, Beck sees mobile payments as a growth area. New mobile-based products will be launched in the third quarter but there is next to nothing assumed for them in analyst forecasts. Planet has two classes of shares - fully tradable ones under the code PPT and regulation S shares with trading restrictions under the code PPTR - because it is a US company. They trade at a similar price - with PPT currently 112p - and together they value Planet at just under £30m.
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