Here’s Why I Would Sell Monitise Plc And Buy Optimal Payments Plc

Monitise Plc (LON: MONI) just can’t compete with the likes of Optimal Payments Plc (LON: OPAY).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Until the 9th of September, I was relatively optimistic about Monitise’s (LSE: MONI) future.

However, when the company warned alongside its full-year 2015 annual results that it was going to miss forecasts once again next year, and the company’s experienced CEO, Elizabeth Buse, was leaving after only a few months on the job, I lost all my confidence in Monitise. 

Losing confidence 

For full-year 2015, Monitise’s revenue declined 6% to £89.7m. The group’s loss before exceptional items, depreciation, amortisation, impairments and share-based payment charges (EBITDA) totalled £41.8m. Including impairment changes and other factors, Monitise reported a statutory loss after tax of £224m. 

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

What’s more, Monitise now expects revenue to decline further during 2016. However, management still expect the group to report a positive EBITDA for full-year 2016. 

Unfortunately, it’s no longer possible to trust these predictions from the company. City analysts believe that while Monitise could reach EBITDA profitability next year, the group will continue to report hefty statutory losses for the foreseeable future. Current forecasts suggest the company will report an operating loss of £61m for 2016, £54m for 2017 and £54m for 2018.

That being said, EBITDA is often used as a proxy to indicate cash flow. And if Monitise does move to EBITDA profitability next year, the company’s rate of cash burn could slow, which would give management more time to instigate a turnaround. 

Still, now that Monitise’s growth has come to a halt, management will find it harder than ever to turn the company around. 

Surging ahead

As Monitise struggles, Optimal Payments (LSE: OPAY) is surging ahead. Indeed, unlike Monitise, Optimal is cash-generative, growing rapidly and has a strong cash balance. 

For example, for the six months ended 30 June 2015 Optimal’s sales increased 40.2% to $223m. Adjusted profit before tax rose by 18.7% to $37.3m and diluted earnings per share increased 11.4% to $0.12. Excluding cash raised through Optimal’s rights issue, group cash at period end amounted to $113.3m. 

Optimal’s deal to acquire its money transfer peer Skrill should start to show through in the company’s earnings during the second half of the year. 

City analysts expect Optimal’s earnings per share to fall by 6% this year, due to acquisition costs and the higher share count — a result of the rights issue used to fund the Skrill deal. Nevertheless, after Optimal completes the integration of Skill, which should take place next year, City analysts expect the company’s earnings per share to jump 26%. Further, group costs should fall as merger synergies flow through, improving Optimal’s profit margins and cash generation. 

Based on current City figures, Optimal currently trades at a forward P/E of 18.1 and 2016 P/E of 14.2. And according to these numbers, Optimal trades at a PEG ratio of 0.5 for 2016, indicating that the company’s shares offer growth at a reasonable price. 

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Down 59% from its 12-month highs, is this FTSE 250 stock too cheap to ignore?

Shares in FTSE 250 housebuilder Vistry are almost certainly too cheap to ignore. But are they discounted enough to offset…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »

Investing Articles

When will Lloyds shares hit £1?

Lloyds shares have surged over the past 12 months, but where will they go next? Dr James Fox thinks there’s…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Stock-market crash: the meltdown of the Magnificent 7

Just before Christmas, these Magnificent Seven stocks were riding high. But after the worst quarter for US stocks since autumn…

Read more »

Investing Articles

Wow! IAG shares are undervalued by 47%, according to analysts

IAG shares have surged over the past 18 months, but analysts are pointing to more growth. Dr James Fox takes…

Read more »