Planet Payment has a "tremendous amount of momentum" going into 2011, says chief executive Beck

Shares in international payment and data processor Planet Payment (LON:PPTR) have had a good run since the summer. And ahead of the firm publishing its pre-close trading statement for 2010 in January, chief executive officer Phillip Beck is in an upbeat mood.

“This business has a tremendous amount of momentum in terms of new products and a pipeline of new business customers,” says Beck who believes that the strength shown by the business in the third quarter of 2010 will have carried on into Q4.

Recently Planet Payment, whose shares are traded both on London’s AIM and over the counter in the US, described its third-quarter results as “another period of solid growth”. Revenue for the three months to 30 September was greater by 32% than Q3 2009 at $15.5m. That means that for the first nine months of this year total revenue increased 31% to $43.2m.

The firm’s operating profit (on an adjusted EBITDA basis) for the three months to 30 September increased to $0.4m from $0.2m in Q3 2009, while the net loss narrowed by 44% to $0.4m.

Planet Payment supplies banks and their merchants with systems that enable them to accept, process and reconcile payments anytime, anywhere and in any currency.

The New York-based business now has a network of more than 40 banks and processors around the world that use its platform. Planet Payment tailors its services to meet the specific features of various industry sectors, including hospitality, retail, restaurant, travel, e-commerce and mobile commerce.

Beck says that it is the tailored nature of the Planet Payment offering that sets it apart from the large firms that dominate the transaction processing market worldwide and allows it to grow profits at a healthy rate. “We’re a niche player. We’re not a low-margin, big-volume player,” he says.

Planet Payment’s multi-currency processing service helps retailers and other merchants perform transactions with international cardholders in the cardholder’s home currency. This service is aimed at increasing revenues and reducing costs for the merchant since it makes the transaction transparent, both to the customer and the merchant. The customer is able to view the price of the transaction, and pay for it, in his own currency and in real time at the point of sale, while the merchant is still conducting business in his local currency.

This fits with Planet Payment’s strategy of targeting the industry sectors listed above, in which merchants are likely to have a proportionately large incidence of customers using credit cards denominated in currencies that are different from their own. In short, the company’s philosophy is that by giving the customer and the merchant more information about the price of products and services in both of their respective currencies a sale becomes more likely, so driving business.

The company also offers ‘enhanced information management and reporting’ services because it recognises that there is a growing need for content management as merchants increasingly generate data from a wide range of internal and external sources. The company’s centralised reporting platform provides transactional data in a uniform, consolidated format across a merchant’s international operations, and it has the ability to focus on selected data according to the merchant’s particular requirements.

Planet Payment’s success in growing its revenues can also be put down to it largely targeting growing economies in the developing world. Beck says that the firm has next-to-no exposure to the eurozone and it is continuing to target growth regions. “In 2010, we launched in seven new countries: the UAE, South Africa, the Philippines, Singapore, Brunei, Sri Lanka and the Maldives,” he says. “All of those countries, and customers in those countries, are starting to contribute volume.”

In the third quarter of 2010, Planet Payment activated approximately 1,800 new merchant locations, while major customer wins scored by the firm this year included deals with the UAE’s Network International and South Africa’s Absa Bank.

The deal with Network International enabled the Middle Eastern transaction processor to offer Planet Payment’s ‘Pay in Your Currency’ service to its merchants in the UAE. This means that customers of those merchants are able to pay in the local currency or in their own currency at the point of sale.

The Absa Bank contract saw Planet Payment enter the South African market in time for the World Cup. The deal saw Absa also adopt the Pay in Your Currency service (known in the industry as Dynamic Currency Conversion), enabling Absa merchants with the ability to present customers from abroad with a choice of paying in rand or completing the purchase in any one of 30 supported foreign currencies.

In October, Planet Payment raised $6m in an 85p per share placing with institutional investors in the UK and US. The funds were used to help repay $4m of long-term debt and to provide additional working capital.

This has helped to bolster the firm’s balance sheet, which had seen cash and cash equivalents fall to $1.1m by the end of September from $3.8m at the start of the year.

Having come within a couple of pennies of 150p in April this year Planet Payment’s share price tumbled to a low of 45p in September, which the company puts down to regulatory uncertainty. Since then, the ending of a moratorium on Dynamic Currency Conversion by Visa and the firm’s Q3 results have helped to boost the shares, which currently trade for around 88p each.

Meanwhile, both Canaccord and independent broker Daniel Stewart believe that Planet Payment will benefit from “scarcity value” as a trend of consolidation within the payments processing sector continues. This year, peers such as DataCash and Cybersource have been acquired by Mastercard and Visa at multiples in excess of 14 times forward EBITDA.

The two brokers estimate Planet Payment will generate revenues of between $66.6m and $67.2m for 2010 (2009: $47.3m) with the company perhaps producing pre-tax profits of $2.5m (2009: $1.1m loss). For next year the firm – which according to Beck has a cost base that is “pretty much fixed” – is expected to boost revenues further to between $82m and $91m, with pre-tax profits coming in at between $6.6m and $9.3m. Both brokers have set price targets of 120p for the company’s shares.