TSN- Spec Buy. Target 6-7cents

Ladies and Gents

Please read this desk note from Jonathon Howe.

Red Leaf Securities Desk Note
By, Jonathon Howe


“TSN” – Transaction Solutions. MICRO CAP. SPEC BUY. TARGET PRICE 6c–7c


By way of background – “TSN” (Transaction Solutions Ltd) own 24.89% of TSi.

TSi is a provider of ATM’s, Bill Payments Kiosks, Mobile and Fixed POS, Card Services, E-Sureveillance, Power Management services deployed across India.



Good afternoon,

Today we had a luncheon presentation with Gary Foster (MD of “TSN”), Mohnish Kumar and Deepak Verma the CEO and CFO of TSi, respectively.

After hearing today’s presentation, you would have to be more enthused by the scope of this business and the nature of the massive MACRO opportunity that is presented and how TSi can capitalize on it.

The numbers are huge, the time frame is long and steady and the government is encouraging this notion of “Financial Inclusion” so all members of the Indian population will eventually have a bank account and a debit card.

This is for various reasons, nothing more significant than having access to what people earn and tax them accordingly.

And there’s only around say ……. 550m Indians who still DON’T have a bank account – see below link for PMJDY.

If you believe in India and the numbers, then you would be extremely bullish on this story.

With TSi looking to achieve roughly $9M EBITDA this financial year and toward $20M EBITDA FY17, you should be valuing the business at around $A400-500M (20-25x EBITDA) on the current business run-rate.

TSN ownership therefore of 24.89% would value the stock at 6c–7c per share – and that’s only on the current business run-rate.

Here are some key takeaways from the meeting:

And before I forget, please email me if you would like a copy of today’s presentation……


KEY TAKEAWAYS:

- TSi total ATM transactions FY16 should hit 525M+ (compared to total FY16 Australian ATM transactions of circa 627M)
- TSi India currently at 13,750 ATM’s total
- FY17 should go beyond 600M transactions for TSi
- TSi services 30 Top Tier Banks and the LARGEST DEPLOYER FOR PUBLIC SECTOR ATM’S - THO THIS IS NOT JUST AN ATM STORY
- 1/ Managed Services: ATM’s EBITDA Margins are sitting at between 15-30%
- Multiple revenue streams allow greater control of margins and costs
- 2/ E-Surveillance: EBITDA Margins are sitting at 30-50% - TSi in-house IP therefore controlling margin return required
- TSi to gain from 30+ bank clients in the e-surveillance space
- 3/ Bill Payment Kiosks: currently managing 350 units with scale to 1,000 in near term
- 31 Billion bills are paid per annum in India with Utilities being >30% of that market
- 4/ Power Management: proven savings on electricity of 30% with total market opportunity worth in excess of $US200M
- 5/ Deployment and maintenance solutions: significant growth available through active discussions and currently managing 3,500 ATM’s for one group
- Total market opportunity size in excess of $US450M
- Multiple revenue lines from the ONE network
- In excess of 550M debit cards issued in India – 150M issued last year alone….
- 220M new bank accounts open as part of Indian Governments Financial Inclusion (PMJDY) - http://www.pmjdy.gov.in/
- India ATM growth to go from 200,000 ATM’s to 400,000+ by 2020
- INDIAN MACRO: Chinese Investors are betting big on India with $11.5Bn in transactions so far in 2016
- India’s middle class will be larger than the entire US population by 2025 (586M)
- TSi geared for rapid expansion given national presence across 18 states and covering over 70% of the population
- TSi platform can now advance to 50,000 ATM’s extremely quickly
- Tsi multiple revenue streams through current business and e-commerce strategies
- 80% of TSi is FIXED COSTS – extremely scaleable business since April, 2016 (Mphasis deal)

Catalysts:

- Tsi platform allows for parabolic growth next 2-3 years with contracts to be constant and quickly achieved
- Opportunity to either IPO, facilitate a trade-sale of TSi or explore 100% TSN roll-up.
- Current discussions include a pipeline of 20,000+ ATM’s


Key TSi Financials …..

• FY16 Revnue - $A60M
• TSi EBITDA margins – 15-20%
• FY16 EBITDA - $A9-10M
• FY17 EBITDA - $A17-20M

The Opportunity – current market size is greater than $US10Bn



TSi quarterly transaction growth since new deal and clients (Source: TSi Roadshow Presentation 14/6)



“TSN” – 12 month chart
I OWN SHARES IN TSN.


Cheers Jonno!!!