Target Price 7c - Read Leaf Research Note 25 10 2016

Good buy recommendation from Red Leaf ... full document here:

https://dl.dropboxusercontent.com/u/5924167/RLS TSN 25.10.16.pdf

Summary:

We believe the acquisition of TSi India for ~$47.7m is positive for Transaction Solutions International as 1) it gives TSN a higher exposure to India’s attractive and growing ATM solutions market; 2) full control of TSi India; and 3) the acquisition multiple of ~4-6x earnings is comparable to past transactions. Our price target of $0.07 is derived using discounted cash flow (DCF) valuation methodology.

• TSi India acquisition. In our view, the acquisition makes sense as it increases its exposure to an attractive Indian ATM industry and financial technology sector that is expected to growth to US$3.3 billion by 2020, at a reasonable price. TSN (and TSi India) continues to build out the largest independent ATM network with 13,750 ATMs currently owned, operated and managed by TSi India (with capacity of up to 55,000 ATMs), processing 525 million ATM transactions as of 2016. In comparison, Australia’s big 4 banks have a combined 13,850 ATMs, processing 628 million ATM transactions. TSi India’s current run rate equates to ~$55 million revenue per annum.

• India and its significant rise in ATM transactions in India expected. The burgeoning size of the Indian middle class is expected to reach 586 million by 2025. In the last year, 550 million new debit cards were issued and 220 million new bank accounts opened. The Reserve Bank of India estimates that the size of ATM and related services market in India is expected to grow to US$3.3 billion per annum.

• TSN has extensive relationship with 35 Tier 1 Indian Banks. TSI India is well positioned to take advantage of the growing financial innovation market in India. TSI is well positioned to expand its ATM network as a result of strong existing relationships with over 35 Tier 1 Indian Banks including The State Bank of India and Central Bank of India. TSI India is not just providing ATM services all over India but in fact has established a network of services through which it is providing numerous products such as bill payment solutions, e-surveillance solutions and management. These integrated product offerings allow the Company to generate multiple streams of revenues from existing extensive network and relationships.

• Existing national footprint in India. The Company has a national footprint in India with over 400+ employees across 17 locations in India to take full advantage of the financial innovation sector which is estimated grow to US$10 billion per annum. There are also additional opportunities for growth in the pipeline which will enable TSI to further expands its presence in the electronic payment solutions market. Some of these opportunities include Unified Payment Interface (UPI), Reconciliation as a service (RAAS) and Bharat Bill pay. The standout feature of these projects is that TSI will be able to leverage its already existing relationships with banks and have a huge first movers advantage in providing these services.

• Valuation. Our price target of $0.07 is derived using discounted cash flow (DCF) valuation methodology. For our DCF valuation we have applied a WACC of 9.5%, Risk-free rate of 5.5%, equity risk premium of 5.5% and a long-term growth rate of 5.0%. Further we have added a 2% execution risk to our WACC calculation. Further, we have factored the recent acquisition announced with TSi India from 2017 onwards despite the acquisition still subject to shareholder approval.

MartyW