In a follow-up to its December report, Spotlight Research claims that Paysafe is processing online gambling transactions in Turkey, a country in which online gambling is illegal. The company confirms that this is not the case, and that non-gambling-related processing in Turkey does not make a material contribution to earnings. We make no change to our forecasts and our investment thesis is unchanged.
Paysafe |
Clarifying position on Turkish exposure |
Update |
Software & comp services |
23 May 2017 |
Share price performance
Business description
Analysts
Paysafe is a research client of Edison Investment Research Limited |
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In a follow-up to its December report, Spotlight Research claims that Paysafe is processing online gambling transactions in Turkey, a country in which online gambling is illegal. The company confirms that this is not the case, and that non-gambling-related processing in Turkey does not make a material contribution to earnings. We make no change to our forecasts and our investment thesis is unchanged.
Year end |
Revenue ($m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/EBITDA |
12/16 |
1,000.3 |
300.8 |
42.1 |
0.0 |
14.7 |
10.8 |
12/17e |
1,103.9 |
332.5 |
44.6 |
0.0 |
13.8 |
9.8 |
12/18e |
1,203.0 |
364.8 |
48.6 |
0.0 |
12.7 |
8.9 |
12/19e |
1,298.1 |
398.9 |
52.7 |
0.0 |
11.7 |
8.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments
Short-seller Spotlight Research has published two follow-up reports to its December 2016 report. One reiterates its view that Paysafe’s exposure to Chinese online gambling is larger and of higher risk to earnings than is currently factored in by the market. We estimate that the total loss of the Asia gateway business (reported in Payment Processing) would reduce Paysafe’s FY17 EPS by c 20%, which in our view is more than reflected in the current valuation.
The second is a detailed report purporting to prove that Paysafe processes online gambling transactions in Turkey, despite this being illegal. Paysafe has stated that it limits processing in this territory to non-gambling related services (wallet and paysafecard only), which in any case do not make a material contribution to earnings. Despite the presence of its Neteller, Skrill and paysafecard logos (alongside Visa and Mastercard) on Turkish language online gambling websites, the company confirms that any transactions originating from these websites are blocked by Paysafe. It also confirms that it does not process for other brands in Turkey. We see no reason to change our views on the back of this report.
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Disclaimer
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Disclaimer
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An excellent performance in Television and Family and the recovery in Box Office in Film underpinned strong revenue and EBITDA growth in FY17 and the outlook for FY18 remains positive. The efforts that the group has made to move closer to the creative process in Film, and to diversify beyond Film, has greatly improved the financial and risk profile. We expect the ratings gap to peers to narrow.