In our recent article about Visa Stock Analysis, we shared about the various different payments and fund transfers methods that are now available to the masses in our world of technology. I realised that, payments are so much more than simply tapping your card on a machine or handing over stacks of cash by hand.
These technologies and services are poised to increase in demand with our society moves towards a cashless society.
From the article about Visa’s Investment Moat, we have concluded that the services of payment networks are here to stay, meaning to say, credit cards are here to stay, which means we need more payment terminal.
When we walk up to the cashier to make a transaction, as consumers, we will take out our credit card and tap on the credit card terminal before walking off after the transaction is completed.
Payment Terminals – the Market Leaders?
The credit card terminal is a type of payment terminal and the market is dominated by a few players. Most of the payment terminals that we will see will belong to either Verifone Holdings Inc., Ingenico Group, NCR Corp or PAX Technology.
All of which are public listed companies with the exception VeriFone Holdings Inc.
Let’s take a look at the 3 companies.
Ingenico Group is a French company that manufactures payment terminals. With a market cap of $4.2B, Ingenico Group is currently trading at PE 24.13.
With information from morningstar, we can see that Ingenico Group SA is a profitable company with quite some amount of debt.
PAX Global Technology Ltd Ltd is a Hong Kong based company with a subsidiary in US. PAX Global Technology Ltd is listed in Hong Kong, with a market cap of 4.19B, comparatively, PAX Global Technology Ltd Ltd is trading a much lower PE of 10.41.
NCR Corporation is an American company that makes self-service kiosk, payment terminals, atm, cash registers, barcode scanners and so on. With a market cap of $3.14B, NCR Corp is the smallest of the 3 companies we are looking at.
The current PE of NCR is negative as the EPS for the trailing twelve months for NCR Corp -$1.11.
Payment Terminals – What to Invest?
Each of these companies have their own strengths and weakness. They have plough through the difficulties to become the biggest among their industry. A look at the figures and we can see that among the 3 companies, there are no breakout leader, with all 3 companies having similar market capitalization. Their profit margins are also about the same, which only further enforce my point.
Through quantitative analysis, we can see that PAX Global Technology Ltd has the best finances as they have the highest profit margin as well as the lowest debt. If I have to choose between the 3, PAX Global Technology Ltd would definitely be my choice.
Looking beyond the quantitative aspect into the qualitative aspect, it seems like there are not much product differentiation among the companies. As long as the companies can produce payment terminals that are safe and efficient, vendors are ok with it. Typically, vendors will liase with the payment gateways or banks and use whatever they provide.
There is no brand loyalty and it is commonplace to see a vendor having multiple terminals from different companies.
Somehow, it reminds me of the quote from Deng Xiaoping, “不管是黑猫还是白猫，只要是会捉老鼠的就是好猫”
Payment Terminals – Which is better?
Essentially, the one that works is the best one. On the long run, among the competitors, it is still possible to differentiate them. Basically, the one with the lowest cost aka, the one with the biggest profit wins. Given that all 3 companies have very similar profits, we can add on that the one with the most cash wins, which could very likely be the one with the least debt.
PAX Global Technology Ltd has the least debt to service among the 3, and it could be the company that can deliver the most value to shareholders simply because they can, especially at PE 10.
After looking at the payment terminals as well as the other payment related articles spurn out by the government’s push to become a cashless society, I had a very curious question, “How does payment terminal works?”
Payment terminal send and receive their signals either through phone cables, Wi-Fi or through a SIM card. Although most terminals are cable based, which means that they are most likely situated at a store and that the terminals cannot be moved around.
What actually piqued my interest is “How does payment terminal work for taxi drivers?” You can’t have a phone cable running behind a cab, and that Comfort taxis don’t have Wi-Fi (Would be great if they start to spoil market and provide free Wi-Fi). This means that the terminals on the taxis can only be connected using a SIM card, like how a mobile phone would. Afterall, those terminals are mobile. (Rushing around in a car. Vroom vroom!!!)
So apparently, telco are also involved in the evolution of Singapore towards a cashless society!!! More accurately, this form of interconnectivity, is known as Internet of Things.
In short, Internet of Things is where everything is connected to everything. It has spun out a whole new industry merging together with old companies while providing opportunities for all. However, Internet of Things will be an article for another day, click to read up on more.
Investment in Singapore for Beginners
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