I'll tell you what I make of this...
1) As was mentioned in articles and by the company in past instances, revenue is "lumpy". I will give you that it is quite light of a quarter but I would not make too much of this unless the company had 3-4 consecutive light quarters. Why? I will refer you to a very old filling (Q1 2013) where the company itself said:
"Our revenues and cost of revenues from our pharmaceutical marketing cards fluctuate widely due to a variety of factors beyond our control. The pharmaceutical companies often do not distribute the debit cards via their pharmaceutical sales representatives to various end points for distribution until days, weeks or months after they create a program, often with little advance warning to us. We also experience dramatic usage swings based on collateral marketing efforts by the pharmaceutical companies that run in association with one of our card programs. Constant variations in program start and stop dates, variations in program timelines which range anywhere between six and thirty six months, and variations in program characteristics such as the monetary value of the load, all contribute to provide dramatic swings in the revenue generated from the programs. As a result, our revenues and cost of revenues do no correlate neatly to the number of cards in circulation or even the number of programs that are active at any given time."
- with that said, the quote above simply refers to the pharmaceutical programs however, it can easily apply to other corporate programs. The company only records its revenues once the service has been fulfilled which in most instances means it must realize the majority of its revenues from these programs in the quarter when these programs end. Hence the reason for Q4 being so high, as many programs likely came to an end in that quarter and from my own interpretation may also be the reason for seasonally higher costs in some quarters as costs may be incurred for the start up costs of a program while the majority of revenues may be recorded in a further quarter. (causing larger margins in some quarters over others).
- I don't see this lower quarter as a bad thing, some quarters may have more programs recognizing their revenue than others and this is normal. As well, the first half of the year from what I know is typically seasonally slow even for the "smoother" revenue streams coming from the plasma centers due to colder/harsher weather impeding the customer flow at these centers.
2)I do not expect any material earnings coming from Europe for at least the next 6 months.
Per the company's comments "We have also identified large scale opportunities in the European Union and are aggressively pursuing those opportunities."
- Opportunities are identified and being pursued, nothing is set in stone yet from what I interpret. From what I know about the payment processing industry and breaking into new markets is it's not that simple. The payment processing industry is heavily regulated and there are many hoops you need to jump through to be able operate in new markets. (likely the reason the company has been "pursuing" these opportunities for quite some time.) I personally think the company is making good strides forward in terms of updating their platform, attending international conferences and expanding their service offerings. We may see something come to fruition in the 2016FY and it could be quite a breakthrough if they do expand into a full new market.
3)It is very hard to project earnings for 3Pea due to the many factors affecting their revenues. I would have to see more consistency to be able to properly model their revenue. However, lets just say they do 0.07 eps for the whole year I had already taken the avg p/e in the payment processing industry to be around 36 placing a share price of 2.52$. At these prices take a worst case scenario of a 0.05 eps and place a discounted p/e of 20 and you'll get 1$... not too bad from 0.40$.
What I see going forward and based on current financials:
- Higher "stable" earnings base going forward which will be more consistent over the long term coming from the growth in plasma centers and the auto industry clients.
- Higher core earning margins as the company is bringing everything in house cutting out the middleman profit cut and managing cost more efficiently.
- Stronger financial profile; ie: currently total liabilities to total assets has dropped to 73% from nearly 100% in Q1 2014; current ratio increasing to 1.2 from 0.90 last year. A/P largely down with cash up over the same period last year with the company paying off about 3/4 of a million in high interest long term debt.
- Many catalyst could easily pop up due to 3Pea's expansion in various market segments and the potential to hit a contract with a major client or an expansion into new markets...
Anyways thats my 2 cents, for any other questions I suggests calling up 3Pea's IR. Hope this helps & Happy investing!
E.
AI
