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Get a Piece of Every Transaction with This Fast-Growing
Credit Card Processor
By Michael Brush
February 02, 2006
It’s every dreamer’s get-rich-slow scheme. Figure out a way to take a small
piece of lots of transactions that happen daily. Then sit back on the beach
and let the money roll in.
I’m not sure how much time CAM Commerce Solutions (CADA)
chief executive Geoffrey Knapp spends on the beach. But he seems to have
figured out the first half of the equation.
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His company spent years after starting up in the 1980s selling payment
processing systems to retailers. That end of the business has been hit or
miss lately.
But another side of the business is hot. It’s a software system retailers
can incorporate into their payment systems that helps them in two ways.
First, it allows them to get rid of that separate box you use to swipe your
credit card. Instead, your card gets read by the store’s register.
Second, there’s now only one transaction – the register both reads your card
and rings up your purchase in one shot. This means at the end of the day
retailers don’t have to audit records of sales through two systems to be
sure they all match up.
“With ours it is all one system,” says Knapp. “You eliminate all that extra
equipment and all the auditing each day.” CAM Commerce takes a small piece
of each transaction, sharing it sometimes with other vendors of payment
systems if they were the ones who installed systems using CAM Commerce’s
software.
Snapping it up
This might be a little more than you care to know about retail payment
systems. But retailers themselves are snapping up X-Charge, as the system is
called. In the September-ending quarter, X-Charge sales grew 78%.
CAM Commerce has other lines of business – like complete payment processing
systems – so overall revenue isn’t moving up that fast. But the good news is
that margins are higher on the X-Charge revenue, so as it grows, earnings
move up a lot.
How much?
B. Riley & Co. analyst Justin Cable doesn’t cover the company. But he
follows the sector so he has a model for CAM Commerce. He’s looking for
overall revenue growth of 9.7% this year and 13.4% next year.
But because revenue should grow faster than costs, earnings per share could
grow 75% this year and 57% next year. That means pro forma earnings per
share could be 77 cents this year and $1.21 next year, compared to 44 cents
last year. The company also has a forward annual dividend of 56 cents a
share, for a dividend yield of 2.4%.
Despite this kind of prospective growth, CAM Commerce looks moderately
cheap. If you strip out the company’s $5.47 per share in cash, the company
trades for about 2.7 times sales, at $23.50 per share. Sage, a big UK
software company, recently paid 5.1 times sales for Nashville, TN-based
payment processor Verus Financial Management.
Insiders have purchased $2.6 million worth of stock since last April, and
this is only a $65 million market cap company. So that’s huge.
About $2.1 million came from a beneficial owner (someone who owns more than
10% of the stock) who has close contacts with top management. Knapp has
purchased $442,000 worth and now owns over 12% of the shares.
The bottom line: Insiders admittedly bought the stock much lower.
Knapp’s highest purchase was at $17.50 and the beneficial owner purchased
most of his stock under $15, but his highest purchase was $22.80. In short,
the stock has been strong of late – probably in anticipation of good
earnings news on Feb. 14 when CAM Commerce reports – so we are a little late
to the story. But there is still probably significant upside ahead, and I’d
expect the stock to be strong on quarterly earnings news. So I would buy
right now.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
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