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Partners reach agreement to grow Collect+ joint venture
Thursday 22 Dec 2016 Author: William Cain

A new deal with joint venture partner Yodel adds a scoop of brandy sauce on to the tasty Christmas pudding that is PayPoint (PAY).

After a year-long stand-off on how to take forward Collect+ – the click, collect and returns parcels service at local shops – the partners have agreed on a new license-based model.

In 2015, Yodel pushed through price increases in the 50:50 partnership which caused a dispute on how best to run the business.

Now the partners have agreed on a setup which sees Yodel meet delivery costs and both partners rewarded for introducing new parcels into the network. The Collect+ brand will also be opened up to other delivery operators under licence.

Attractive options

Growth in Collect+ is one of many attractions to the investment case at retail payment terminal provider PayPoint.

PayPoint One, a new terminal which can replace a retailer’s checkout system, is among the most exciting. It could prove an attractive and low cost option for smaller retailers looking to introduce or replace in-store electronic tills and card payment units.

Fees paid to PayPoint for using the system range from £10 to £20 a week depending on whether the customer already uses PayPoint and which package they choose. The addressable market for the product is in the region of 30,000 retailers indicating potentially significant revenue from the new product.

Asset sales

PayPoint is also in the process of selling its mobile payments division, proceeds of which will be returned to shareholders.

The company separately plans to return £25m a year to shareholders for the next five years, equivalent to 36.6p a year. That is over and above ordinary dividends planned in the year to 31 March 2017 of 45.8p.

In total, the targeted shareholder payouts, which are not guaranteed, could total half the company’s current £625m market value over the period.

For the year to 31 March 2017, analysts at Liberum estimate PayPoint will pay out 100p in dividends including ordinary and special dividends and returns of capital from disposals. PayPoint has already paid 27p per share of that amount.

Liberum analysts expect a further 74.5p of payouts in PayPoint’s 2018 financial year and 78.4p in the following year.

Key risks include the pace of change in an innovative payments industry which could increase competition and erode PayPoint’s market share, revenue and earnings, as well as cause losses to shareholders.

PayPoint is a rare business that can grow and return significant amounts of capital to shareholders at the same time. We rate it as a very high quality business. Buy at 921p. (WC)

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