My Broker Briefing Notes.Baillieu Holst: Melb: 11 Oct:...

My Broker Briefing Notes.
Baillieu Holst: Melb: 11 Oct: 10:30.
Representing Mint:
Alex Teoh,
Bjorn Behrendt ,
and
about 20 others.

Presentation: same as released to the market 10 Sept. 13.
With verbal amplifications and explanations.

XanaX was pleasantly pleased and surprised that the briefing was entirely without spin or B.S. (technical term). There were no nod, nod, wink wink suggestions of any type. And, Mint made it clear that they would only announce to market ‘done deals’ and would not enter into any speculation as to whom they may be talking.

$3m. Capital Raising: Mint confirmed that this raising was sufficient to fund the next 12 months. No further capital raisings are currently contemplated.

Mint confirmed that there was a technical relationship with Soft Space in Malaysia.

My thoughts will be prefaced with MS: (My Speculation)


Applying a simple S.W.O.T. analysis. (Strengths, Weaknesses, Opportunities, Threats.)

Strengths:

First mover advantage: at least 18 months.
Compliance completed.
Expandable and scalable platform.
Growing market.
Future tech. anticipated.

Mint, clearly understand the difference between ‘Cutting Edge’ and ‘Bleeding Edge’ development costs. The tech. is for today not what may be contemplated in 10 years. But the platform has factored in the future when your smart phone becomes your wallet.

Very cheap payment system for micro businesses, market traders, eBay, tradesmen, etc. and anybody with an ABN #. But also cheap and portable enough to have multiple devices at multiple locations, as with EzyJet at boarding gates. Transport & delivery companies etc.

Mint technology will damage and compete with the big 4 banks Eftpos equipment rental streams. Significant savings for SME.

Weaknesses:

None of any note that XanaX can think of.


Opportunities:

Expansion into Asia & China, however this is the future, not the now, as only about 15% of transactions are credit or debit cards at this time. About 86% of all Aus. Transactions are card based.

Europe: partnering with Barclaycard.
Mint can expand into Europe unlike competitors such as the US based ‘Square’ which does not use Chip & Pin tech. so cannot enter the Europe or Aus. , NZ markets.

To partner with a major financial institution or Bank.
(PayPal being part of eBay)
(Square being owned by Jack Dorsey of Twitter fame)

Or even acquire a financial services licence and become clearing house.

MS: For Square to become a global payments platform it would need to buy Mint!

Threats:

New entrants? But unlikely in the Aus/NZ market as the barriers to entry are very high and lead times long. I note other postings this morning about other devices and platforms. That all well and good but you also need accreditation and compliance. Mint is the first mover in this market and has at least a 12
month advantage. Also remember that Square cannot enter the European or Aus/NZ markets.

Mobile Wallets, may be the future…..see above, China and Asia are just beginning to use Cards. Mint is a cheap and easy solution for NOW ready to go. And as I understand the briefing are ready for the step.

Remember: Stay at the ‘cutting edge’ not the ‘bleeding edge’. No point in rolling out expensive platforms that are only likely to be used by Urban Penniless Hipsters as a statement that they have their CentreLink payments credited to their phone.

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Hardware:
Card reader: retails for about $58 with a 20% gross margin.
Card readers are to be sold anywhere that stocks MYOB software, Office works etc.
Mint would not comment on whether the card readers would be marketed in Telco shops or by Apple
etc.

MS: expect this soon Apple would be a natural fit.

Current clients:

BNZ: goes live end of Oct.13. all BNZ terminals are branded (white label, PayClip).

MYOB: rollout starts early 2014. Payment system to be integrated into the accounting software so that a payment received is automatically recorded in the sales ledger. MYOB pays a licence fee of between $200-300K p.a.

MS: MYOB & Mint understand the lifetime value of the client, leading to an ever expanding annuity income. Once you’re committed to a platform it’s very hard to change.

SITA: expect big things here, new revenue streams for Airlines, ‘pay at the gate’ for extra hand luggage or leave it behind!

EasyJet UK: Mint payment solutions has added £10m. to the bottom line of EasyJet by charging ‘at the gate’ for every extra piece of carry-on hand luggage beyond one piece.

MS: expect to see this at an airport near you soon.

Bendigo Bank. First mover advantage amongst the banks with Bendigo having a reputation of being SME’s Bank of choice.

Jim’s: all franchisees.

Cadbury Schweppes:

Harvey Norman: a colleague had a COD delivery this week and the payment was processed via Mint.

Shareholding: about 50% of Mint is held by management or other significant shareholders. IMO this is only going to tighten. Any insto. Interest will need to buy on-market. Expect big swings and the entry of algo trading as instos. wrestle for market share.

Broker gossip: the view amongst some of the guys close to the Mint story were speculating that by Christmas the SP should be in the $0.40 to $0.70 range and $1.00 next year… This I think will be driven by announcements and revenue updates, watch this space.

Revenue: 4 distinct streams.
1. Hardware gross margin of 20%
2. Monthly fees to users: typically $10/20 p.m.
3. Annual licence fees. MYOB pays $200/300k.
4. And the big one: Transaction Fees: between 1% -1.75% : which may or may not be shared with the originator (MYOB etc).

I can find no revenue projections from Mint. I assume this to be because nobody would believe them.
So here are my thoughts.

MS: assumption:
$1bn. Of transaction revenue at a margin of, say, 0.85% (being half the average of above) is $8.5m. to the bottom line.

If the projections are to be believed that the mPos market in 2014 is $7bn. Then: 7 x $8.5m= $59.5m.

To achieve $1bn. In transaction revenue:

If we assume that a micro business has a turnover of $2/3000 p.m. say $30k p.a. then you need approx. 35,000 micro businesses to achieve $1bn in transactions. MYOB services 1.2m clients!

Some very unscientific numbers: if you assume, say, 250,000 users that’s 20% of the MYOB client base, with one card reader each, and these are all micro businesses then revenue would be;
250,000 X $10 (margin on hardware) =$ 2,500,000
250,000 x $180 ($15 p.m. fees) =$45,000,000
250,000 x $30K (micro bus. Turnover) x 0.85% av. Transaction fee=$63,750,000

Mmmm …..Would revenue of $110m. support a valuation of $1 per share?, a Billion Dollar Co. you bet!

MS: If Mint can capture a significant portion of the mPos market (in Aus. NZ) say 1m. clients and say $10Bn. in transactions by 2017 (see p.6 release to market 10 Sept.) Then using the assumptions above and simplifying it (let’s not turn this into a monster spreadsheet) by adding all the fees together and expressing them as a percentage of transaction turnover, and assume a range of values between 0.5%, on the low side, & 1.5% on the high side, but settle on, say, 1% to keep the math simple.

Then it follows that $10b. of transactions is worth $100m to Mint. Let’s be bold and say $100bn. in transactions, (and that is only 10% of the Aus. economy where 86% of all transactions are settled by card), then at ‘clipping the digital ticket’ at 1%, $1bn drops to Mints bottom line.

This is mining digital pay dirt of the most exquisite quality.

All XanaX can do is commend this company to your notice.
If it all goes tits-up (technical term) it’s not my fault DYOR.