Neteller - Founders sell shares & Netbanx acquisition

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LONDON (Reuters) - NETeller (LSE: NLR.L - news) <NLR.L> posted a doubling of third-quarter profit on Monday but its stock fell 8 percent as the online money transfer firm's founders sold shares representing nearly 30 percent of the company.

NETeller, a beneficiary of the growth in online gaming, said in a statement some 35 million shares had been placed at 625 pence through its broker Canaccord.

"The placing will result in the founder shareholders holding less than 30 percent of the issued share capital of the company and hence no longer be deemed to exercise control," it said.

NETeller provides an online means of transferring funds worldwide, used by more than 2 million customers and 1,700 supporting merchants. Its shares closed 7.9 percent lower at 654.5 pence, valuing the firm at 789 million pounds.

NETeller's income before tax jumped 106 percent to $26.3 million (15 million pounds) in the three months ended September 30 and was up 122 percent at $66.9 million in the first nine months.

"We have seen excellent growth across all areas of the business on a year-to-date basis. We look forward to the final quarter of 2005 with confidence and expect to demonstrate continued progress", Chief Executive Gord Herman said.

Revenue also rose 106 percent to $44.9 million in the third quarter, while the gross margin widened to 73.9 percent from 69.6 percent a year ago. Average daily receipts from customers rose 88 percent to $3.64 million.

"All the key performance indicators are in line (with expectations) but that's not to underplay the strength of the results," Evolution Securities analyst Robin Chhabra said.

Following last year's third-quarter results, founders including Chairman Stephen Lawrence sold shares worth 86 million pounds, reducing their stake to 49.9 percent from 75.4 percent.

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Acquisition of Netbanx (copmmentary by Evolution securities)

Neteller has acquired Netbanx, a UK Payment Service Provider (PSP), for £12.4m. The acquisition represents a significant step into the PSP market and helps to diversify away from the core US-focused gambling business.

Neteller has acquired Netbanx, a leading UK Payment Service Provider (PSP) for £12.36m in cash. Netbanx has relationships with all the major UK acquiring banks and processes approximately £10m of credit card payments per month. Netbanx has >1500 merchants including Royal & Sun Alliance, nPower and Companies House.

Payment Service Provider’s facilitate online debit and credit card transactions. Neteller is not a PSP but connects to PSP’s in order to facilitate its money transfers
to and from its e-wallet. Therefore, there should be some cost savings from vertical integration. However, Netbanx is a UK operator whilst most of NLR’s transactions are derived from the US, therefore the cost savings for the core business is likely to be relatively small. The principal benefits derive from diversification, both geographical and product based as NLR strives to build a strong position in the fast growing global electronic payments industry.

Netbanx reported Sales of £27.7m and PBT of £1.1m for the 18 months to June 2005. The closest listed comparator to this business is Datacash (DATA.L) not covered, which is a leading PSP with a focus on the UK gambling industry. DATA is growing profits rapidly benefiting from high operational gearing and trades on a FY05 PER of 20.8x and a FY06 PER of 18.7x.

The company expects the acquisition to be earnings enhancing in its first full year, which seems reasonable based on the information provided. We will report back
with our revised estimates, but the bottom line is that this is a sensible but not transformational acquisition. We applaud management’s drive to diversify the business away from US-focused gambling, which should theoretically yield a higher rating (as the impact of regulatory change would be reduced). However, we would need to see a lot more deals and initiatives of this kind before the USgambling related business ceases to become the overwhelming contributor to group earnings.

[r3vbr]

Buy this NOW. You will make money I guarantee.

[imported_bingobazza]

On the face of it, this is worrying news...but if this is the founders entire net worth (and Im sure it is the bulk of it), wouldnt you sell? Im not reading too much into this...the real worries for NLR are still the same....namely concentration on US gambling.

Bingo

[Sniper]

It sounds like the founders still own a significant amount of stock, and this is likely just a way of diversifying their holdings and cashing out some $$$.

[r3vbr]

[ QUOTE ]
It sounds like the founders still own a significant amount of stock, and this is likely just a way of diversifying their holdings and cashing out some $$$.

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That is correct. And let me just say that the current price is a BARGAIN for this stock, this should be worth at least £10 (considering it's risk).

I already own a lot of it, and calling broker to buy some more.

[Sniper]

For the record, they reduced their stake from 49% to 20%.