Neteller Share Discussion Threads

[peteark] 29/7/2007 10:59

Very good point nurdin

Paypal will be fine as it is now established with the backing of Ebay, however all of the other payment providers will come under pressure as credit card companies eat into their profits.

Given the option of using Visa or Mastercard facilities compared to Neteller or some other ambiguous provider, I know who I would use.

I did hear a whisper that Neteller where looking at the online auction world, although I cannot see it myself.

[nurdin] 29/7/2007 10:50

The only question bugging me right now is why would anyone use NLR money transfer services when credit cards are allowed in Europe and indeed Asia?
Perhaps I need to understand their model a bit better....

[dealy] 29/7/2007 10:43

what's so naive about that? The problem arose from facilitating money transfer relating to gambling. What would happen if they wanted to be involved in auctions or similar non-gambling e-commerce.

Either way the share price reflects zero optimism of any kind.

[guidfarr] 29/7/2007 10:22

lol @ dealy guys i'm sorry but some of you are just naive!!!

[crosswire] 29/7/2007 08:21

NETeller Distribution Plan for U.S. Customers to Begin Monday
July 28, 2007
Martin Harris

Online payment processor NETeller Plc has announced its intention to begin the process for distribution of U.S. member funds on Monday, July 30. The announcement follows the resolution of the United States Attorney's Office investigation into the company earlier this month. The distribution plan is the result of an agreement made between NETeller and the USAO.

According to NETeller, the company "is returning $94 million to hundreds of thousands of U.S. customers." Thus do they forewarn members "it will take some time for all payments to be processed." The company is also advising customers to be wary of so-called "phishing" scams that may coincide with the distribution of funds.

[ygor705] 28/7/2007 15:17

Dealy..............dont worry abt the "how much" issue. Any sniff of a buyer will send this one into orbit.

[dealy] 28/7/2007 09:13

Page 8 of the August 2006 Canacord Adams presentation on the Neteller website illustrates that for every dollar of "customer receipts" the company earns net income of 7.3c.

Based on $1.7m per day run-rate of customer receipts and assuming everything else were the same the company would earn $45m or £22m in net income on an normalised basis. Margins probably have suffered though but there should be some growth too. On a very simple back of the envelope basis, if daily customer receipts rose to $2m per day in 2008 and net income margins were only 5% instead of the former 7.3% then the company would have net income of $36.5m or £18m and would also earn a further £4m in interest on the cash pile (remember a large chunk of cash does go out until 2009). So the company would then earn £22m in 2008. That puts them on a PE of 4.

[dealy] 27/7/2007 18:57

and for how much

[ygor705] 27/7/2007 18:44

Good to see NLR back in the traded market. Great post Polaris and like you I missed all the fun earlier on in the week. The only thing that I don't see mentioned on this Board is takeover potential. It is in the nature of things that stocks that have got on the wrong side of a major regulator get taken out for PR\clean market interface reasons. IMO the same thing will happen here: the only question is when.

[quinan] 27/7/2007 16:50

Cheers pete will have a look have a good weekend all.

[peteark] 27/7/2007 15:54

Mart,

For old time sake I will give you this one, buy some RCG, dropped 10% since stating its results will be well ahead of market expectations. Results due mid Sept, I expect it to be around £3 end of year.

dyor mate

pete

[advfn_1] 27/7/2007 14:52

Anyone got any share price targets then?

[dealy] 27/7/2007 13:43

great post Polaris.

I am new to this stock having first bought when it re-opened on Wednesday. I will study the report in more detail at the weekend and give some feedback. There is a presentation on their website from September 2006 which illustrates how customer money flows translate into profits. We know what the new money flow rate is so this may also be a useful yardstick in comparing profit forecasts.

Their value as a take-over candidate though should also not be underestimated.

[quinan] 27/7/2007 13:36

Wow polaris a very nice sum up just been reading whilst drinking my tea, as you say the numbers are the key to an accurate share price valuation but you have highlighted some good information for new bites like me thank you.

IMHO the fall when NLR re-listed was inevitable, the scale was overdone punters selling just to get out without looking at the long term picture. NLR's cash pile is the key to a stable share price at this stage it will give them time to reorganise and expand into other markets, ok some may say trust has been lost after the fiasco in the US but this was not all down to NLR the US authorities must take a majority of the blame. We all know what's going on in the US and the US citizens and not all stupid, in all fairness any American who was depositing money into NLR were also breaking the law?

I am willing to sit and wait as I see some good opportunities for NLR and maybe someone like paypal might have a eye on them?????

[polaris] 27/7/2007 13:12

As someone found a half-live insect (looked like a cricket) in their food here i decided not to go to lunch and have instead read the annual report.

To write too much about 2006 does not seem relevant and so i shall shy away from it except to say that had the UIGEA not been passed then NLR were on for $400m plus in revenue this year taking into account that the US revenue ALONE between 1st Jan and 16th Jan totalled $14m!!

OK, so on to the real business. Q1 revenues were $32.7m of which $14m comes from discontinued US and $3.9m from now discontinued Canadian business. That leaves $14.8m for ongoing business, which i will use for forward projections of revenues for 2007 and 2008. Gross transfers per day amounted to $1.7m for Q1 of $154m (compare that to the $1.86bn that was transferred for the whole of 2006!)

......................Q1..............Q2..............Q3............Q4.......
2007................$32.7...........$15.0m..........$16.0m........$18.0m.....
2008................$20m............$21.0m..........$22.0m........$25.0m.....

That gives $81.7m for 2007 and $88m for 2008.

The figures i base this reasoning on are the historical and current sign-up rates and number of active customers. At the end of Q1 2007 there were almost 100k active users (continued businesses) split to 79.6k in EU and 20k Asia/RoW. That compares to 91.5k at end Q4 2006 (71.5k/15k) and 66.3k at end Q1 2006 (51.4k/14.9k) - a 50% rise YoY. Note there seems to be no effect on the growth in active users after the UIGEA and the problems for NLR, which started in October 2006. Q2 sign-ups have continued at at rate around 850-950 per day, which compares well to the around 1100 in Q1 after pullout from the US but retaining the Canadian operation (that numer is in one of the trading updates while suspended).

The margin is likely to be lower this year and next for several reasons. The main ones are the higher banking fees in europe and RoW compared to the US and a rise in bad debts as a result of the payback of the US accounts. The margin is currently around 51% and id expect to see that rise to around 55% by YE as reorganisation and funds are returned and NLR can move on. Thus for 2007 i am going to use a margin of 53%, which gives EBITDA of $43m, and 57.5% for 2008, which gives $50.6m.

Reorganisation costs in 2007 are going to be $3.1m and then the other non-specified costs from the probe and the return of funds to US customers to be $35-40m. My feeling is that they will match the gross profit figure and that NLR will post a FY thatis close to b/e. 2008 to come out very much like the numbers that NLR posted for its whole operation in 2004 (see annual report) but with a 10% lower margin due to higher costs. That means that profits to be in the range $25m-30m.

The advantage over the NLR in 2004 will be that there is an associated cash-pile available to NLR of somewhere between $75m and $85m. The exact figure will depend on the levels of bad debts when US customers are paid back and so how much of the $12m in restricted cash is released to the group.

2007 still has 5 months to run and the projections i have made are on a single Q of the non US/Can business and that is not a lot to work on so the uncertainty is high. I will do the figures again after the Q3 update in November when i will have 6 months of full figures to play with and so can be much more quantitative in my approach to revenues etc.

So now comes the hard part...valuation. This i think is open to how you interpret current and future prospects. For me i will be wiping out the 2007 numbers and doing the valuation on a clean 2008 set of numbers.

2008 gives FY profit around $25m post tax (£11-12.5m depending on how low the $US falls). The business is still expanding nicely and so i think the historical P/E on results days from previous years will be a reasonable starting point (17.5) to value the business at £192.5m using £11m figure. This does not take into account the cash pile. The variation in the P/E over the year historically has been 10-25 of that years earnings. That means valuations ranging from £110m to £275m ex cash (91-230p).

As you can see - this is a very wide rage on the current information available. You could say that will be very similar numbers for this years before all the one-off costs are taken into account due to US contribution to revenues but that is up to you to judge. My 12 month price target on these figures is for NLR to be trading at around 15 times prospective 2008 earnings. Using the £11m figure that gives a target of 137p.

All this must be taken with a pinch of salt until i have more info to go on but the current market cap is around £90m, equating to a forward P/E of 8.2. However, at the 50 odd pence they were trading on the afternoon they were relisted i would have been a significant buyer. Its more difficult now as there will be further short term volatility as the traders finish up and the extent of the reorganisation is not fully known - hence the uncertainty.

I will be looking to buy but with a stop in place (i always trade with guarenteed stops to make sure i am never caught out) with the above targets in mind.

Please bear in mind that these are only my thoughts on the subject. If anyone notices glaring errors please point them out. I hope this provides the asis for a decent discussion on the share.

regards,

Paul

edit - some of poor spelling cleared up. I hate my keyboard!

[brian1944] 27/7/2007 11:46

polaris thanks .

[quinan] 27/7/2007 11:33

Cheers polaris new to this stock any info would be much appreciated.

[supersturrock] 27/7/2007 11:32

Thankx polaris - would be much appreciated.

[polaris] 27/7/2007 11:28

I do not believe that they relisted the afternoon i left the office for two days with no prior notice....grrr! I would have been moving heaven and earth to buy that low!!

I'll go through the accounts this afternoon and give forecasts and valuation scenarios early next week for anyone that is interested.

regards,

Paul

[dealy] 27/7/2007 10:44

the annual report is on the website.

[supersturrock] 27/7/2007 10:43

Does anyone have online access to company accounts ? I am still intrigued as to latest profitability and therefore value of the Netbanx subsidiary which was bought 2 or 3 years ago for £ 12 m as I recall. My own clearing bank has them on a list of about a dozen approved payment processors so they must have picked up their fair share of new merchant accounts. Maybe they are now worth c.£ 24 m.

[dealy] 27/7/2007 10:22

don't forget about share buybacks.

[quinan] 27/7/2007 10:22

Hi pete now that would be very good news and most certainly push this a lot lot higher, as they say you can never stand still in business. The move into other e wallet applications such as auction sites and even business payment options would be a good move IMHO.