I watched the presentation today for CCA and the CEO mentioned that industry average valuations for similar companies is around 6x revenue vs the current valuation of around 3x. I mentioned in one of my previous posts that I discovered Change Financial because of their acquisition of the Wirecard assets and that Wirecard was a customer of a company that I own stock in.
I thought at the time that since Wirecard was a customer of CoreCard Software (100% owned by the publicly traded company Intelligent Systems, I assumed that the acquired assets might have been based on the CoreCard platform. Another user pointed out that those assets were actually acquired when Wirecard purchased a company called GFG Group. So it was not a direct connection to the CoreCard platform. But the historical valuation of CoreCard/INS might help see how the valuation of CCA could change over time.
The stock of INS traded around $4 a share in 2017 and had a total market cap of around $35 million. For 2017 INS had revenue of $9.3 million and reported an operating loss of $1.4 million. So at that time it was trading at 3.7x revenue.
CoreCard/INS had some good fortune in getting Goldman Sachs as a customer in early 2018. But it wasn’t know at the time who the customer was that caused INS to report revenue of $20.1 million and operating profit of $6.1 million for all of 2018. INS finished the year at $13 per share or around 5.7x revenue.
In March 2019 Goldman Sachs announced they would be issuing the Apple Card later in 2019 based on the CoreCard platform. INS reported $35.8 in revenue for 2019 and the share price finished the year at $41 per share or around 10.1x revenue. Today INS trades at around 7.5x revenue.
Change Financial probably isn’t going to land a customer the size of Goldman Sachs/Apple and have their stock price go up 10x, but if they can onboard a few new customers and get better known you can see a pathway to a higher valuation just based on a higher multiple of revenue being applied to the share price.
CCA is like INS in 2017, just need to have a big positive news event to change the valuation from 3x to 6x+
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