check this out
10:48am EST 25-Jan-99 Morgan Keegan (Kasargod, Ram (901) 579-4246) CMIV
IVI CHECKMATE VISITS OUR OFFICES - OUTLOOK IS IMPROVING
Morgan Keegan & Company, Inc.
Research Notes
January 25, 1999 52 Wk Range $7-$3
IVI Checkmate Corp. Inst. Ownership (%) NA
CMIV - $7 1/4 Mgt. Ownership (%) 20.8%
Avg. Daily Vol. (000) 42.8
Market Cap. (Mil) $130~
Current Chg. From Dividend Yield (%) NIL
Rating: M-S Book Value $3.10
EPS: 12/97A: $0.22 Price/Book 2.34x
12/98E: $0.35** '99 Cash Flow/Share $0.95
12/99E: $0.52 Price/Cash Flow 7.63x
**Does not include one time merger related expenses
Rpt. Date Range
Q4:98: $0.08** vs. $0.11 2/25 First Call: $0.10 vs. $0.11 $0.10-$0.10
Q1:99: $0.08 vs. $0.06 First Call: $0.10 vs. $0.06 $0.08-$0.11
Q2:99: $0.11 vs. $0.09 First Call: $0.12 vs. $0.09 $0.11-$0.12
Q3:99: $0.17 vs. $0.12 First Call: $0.17 vs. $0.12 $0.17-$0.17
IVI CHECKMATE VISITS OUR OFFICES - OUTLOOK IS IMPROVING
IVI Checkmate's management team, including CEO Barry Thompson and CFO
John Neubert, visited our Memphis offices on Thursday (1/21/99) to
discuss the company's future outlook. We have noted that the POS
terminal market is in a state of rapid consolidation (see industry note
dated 1/18) as evidenced by recent acquisitions by Ingenico (which owns
roughly 8% of CMIV) and Hypercom (HYC -$13 11/16), a major competitor to
CMIV. The total installed base of POS terminals worldwide currently
stands at 16.8 million, of which the US and Canada account for 8.1
million (48.2%). Based on Nilson Report figures, CMIV accounts for
approximately 38% of the installed base in Canada and 6% in the US,
placing it in third place behind market leader VeriFone (71% of US
installed base) and Hypercom (12% of US installed base). The remainder of
the US market is fragmented, with no other competitor having more than a
3% market share.
At our offices, IVI Checkmate management presented its strategy for the
future, which is centered around transitioning from selling hardware to
providing integrated payment solutions. Key points in the company's
strategic plan are outlined below.
· Improve Software Capabilities - IVI Checkmate has made a number of
acquisitions recently that have dramatically improved the company's
software capabilities. These acquisitions include the 1996 acquisition of
NTN, the 1997 acquisition of TRS, and the most recent acquisition of
Plourde Computer Services in September of this year. Additionally, the
company acquired Debitek Holdings in November of this year to boost its
competencies in the smart card application interface (API) market.
These acquisitions position CMIV to gradually transition from providing
hardware to providing full solutions to its retail customer base.
CMIV's strong balance sheet with no long term debt, combined with the cash
flow characteristics of the underlying business, should enable the company
to continue to make periodic acquisitions to further improve its software
capabilities.
· Transition From Point of Sale to Point of Service - Currently, IVI
Checkmate generates 7% of its revenues from professional services, and its
goal is to eventually ramp this up to 30%. The company intends to
transition its product line to provide more functionality including
eventually linking into a retailer's in house computing applications.
Future services could include payment transaction routing, promotional and
advertising capabilities at the POS, instant credit capabilities, as well
as potentially many other value added services. This shift from providing
POS hardware to integrated solutions, if successfully executed,
should provide the company with a higher margin service offering and a
base of recurring revenue.
· Utilize Leading Edge En-Touch 1000 Terminal - IVI Checkmate management
brought with them an En-Touch 1000 terminal, which the company views as
their lead product in the near future. The terminal, which incorporates
touch screen technology and signature capture capabilities, currently
offers credit and debit features, and can be utilized to provide
customized, value added services to the retail and hospitality industry
with additional software upgrades. Industry trade journal, STORES,
pointed out in its July 1998 issue that the En-Touch 1000 terminal is
certainly at the leading edge of the POS market, and offers more
functionality than similar terminals offered by competitors. Management
indicated that the En-Touch 1000 is in the process of being commercially
deployed, and is in the trial phase with major players in the retail
industry.
· Leverage Ingenico Relationship - Currently Ingenico, the second
largest POS terminal provider in the world, owns approximately 8% of IVI
Checkmate. Ingenico currently serves as a worldwide distributor of CMIV's
products, and the two operate a joint venture in Latin America (50% owned
by CMIV) to provide POS terminals to the Latin American market. Ingenico's
recent acquisition of Bull's POS business, is an indication of Ingenico's
strategy of building its global market share. We believe that IVI
Checkmate's unique relationship with Ingenico in the Americas positions the
company to benefit from Ingenico's intention to aggressively capture global
market share.
As a combined company, IVI Checkmate grew its revenues at a 21.1% rate in
1997, and we are estimating 20.1% top line growth in 1998. We are
estimating EPS growth of 59.1% in 1998 not including merger related
charges, and EPS growth of 48.6% in 1999. CMIV has exceeded our
financial expectations in each of the two quarters reported since the
combination of IVI and Checkmate in Q2:98, and the company plans to report
its year end 1998 results on February 25th. Currently, the shares trade at
20.7x our 1998 EPS estimate and 13.9x our 1999 EPS
estimate. This represents a discount to its growth rate and its best
comparable, Hypercom, which currently trades at 17.9X consensus EPS
estimates for its 1999 fiscal year ending June. We believe the shares are
a value at these levels. We will maintain our rating at the current time
until we get more visibility on the near term financial outlook. Following
very disappointing financial performance in 1997, industry and financial
trends are now headed in the right direction. We believe this should have
a positive impact on stock valuation.
Ramkrishna P. Kasargod, CFA / Hal L. Goetsch/ Tavis McCourt
(901) 579-4246/ (901)-579-4560 / (901)-579-4545
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