ATM Services Could Be Good Investments
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the past five years, Global Cash Access Holdings (NYSE: GCA) has experienced a lot of volatility on the market. Its share price has fluctuated widely, in the range of around $2 per share to $9 per share. At the time of writing, it is trading at nearly $7 per share. Famous investors, including Jim Simons, David Dreman and Paul Tudor Jones, are the company’s shareholders. Let’s take a closer look to determine whether or not investors should buy Global Cash at its current price.
Global leading cash service provider to casino industry
Global Cash is the leading provider of cash access services including Automated Teller Machine, or ATM, and point of sale, or POS, debit card transactions, processing more than 93.5 million transactions with the total value of $20.9 billion in 2012. Interestingly, Global Cash delivered its services mainly to the gaming industry, with the main office in Las Vegas.
Most of its revenue, $227.5 million, or nearly 39% of the total revenue, was from cash advance services, while the ATM service ranked second with $303.2 million in 2012 sales. Cash advance and ATM services are also the two biggest operating income contributors, with $63.8 million and $32.3 million in profits, respectively.
The company has quite a concentrated customer based, with the five largest customers accounting for 34% of its total revenue in 2012. What I like about Global Cash is its market leading position, with more than 60% market share in the casino industry.
Global Cash has a strong balance sheet with a reasonable amount of leverage. As of March, it had $202 million in equity, $71 million in cash and $117.5 million in borrowings. It also booked around $180.9 million in settlement liabilities.
According to the company’s 10-K, Global Cash “receives reimbursement from the patron’s credit or debit card issuer for the transaction in an amount equal to the amount owing to the gaming establishment plus the fee charged to the patron. This reimbursement is included within the settlement receivables on the consolidated balance sheets. The unpaid negotiable instrument amounts and electronic settlement amounts owing to gaming establishments are included within settlement liabilities on the consolidated balance sheets.” Thus, we could understand that although settlement liabilities is a type of liabilities, but it is not the company’s debt.
A lower valuation than Global Payments
Global Cash is trading at around $7 per share, with the total market cap of $463.50 million. The market values Global Cash at around 7.1 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).
Compared to Global Payments (NYSE: GPN), Global Cash has a bit lower valuation. Global Payments is trading at around $48.70 per share, with the total market cap of $3.70 billion. The market values Global Payments at 8.3 times its trailing EBITDA. Global Payments is the much bigger company, processing more than 5 billion transactions, with the total dollar volume of more than $350 billion. Around 72% of the total revenue derived from North America.
For the full year 2013, Global Payments expects to deliver around $2.36 billion to $2.40 billion in revenue, while its cash EPS might come in at the range of $3.64 - $3.71. The company estimated that it could achieve the growth of mid-teens or higher in Russia and Asia Pacific, while the U.S. will experience a double-digit growth. In the beginning of this year, Global Payments announced a $125 million accelerated buyback program. The company expected to complete this share repurchase program in the next two quarters.
How about this ATM supplier?
On the positive trend of cash services and ATM services, investors might pay attention to the global leading ATM supplier, Diebold Incorporated (NYSE: DBD). Diebold is the largest global leader in ATM, accounting for around 50% of the total North American ATM market and 25% of the global market.
In the first quarter, Diebold posted a loss of nearly $13.5 million, much more disappointing than the $45.2 million profit last year. However, Diebold’s shareholders could be optimistic about the company’s future under the leadership of new CEO Andy W. Mattes, with a new multi-year realignment plan to improve the business profitability.
Diebold plans to reduce its costs by around $100-$150 million by 2015, including cost cutting, plants divestment and manufacturing facility rationalization. It is estimated that half of the savings will flow to the company’s bottom line. Diebold is trading at around $33.90 per share, with the total market cap of around $2.15 billion. The market values Diebold at around 12.43 times its trailing EBITDA.
My Foolish take
Global Cash, with the global market leading position, a strong balance sheet and a low valuation, could be considered a good long-term pick at its current trading price.
Diebold, on the other hand, seems to be an opportunistic play on the business turnaround. Wells Capital Management estimated that Diebold’s private market value was around $44 per share, a 30% premium to its current price.
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Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!