cashed up micro cap

Article from the eureka report today, part of a broader analysis of cashed up companies looking for expansion opportunities in a cheap market place.

"Another well-funded micro cap is Oncard, with $15 million cash and a market cap of $33–35 million. Oncard’s business is cash cards, with the focus on Asia and particularly China where a joint venture operation is represented in about 40 large cities. Staff numbers in China, Hong Kong, Malaysia and Singapore are about 400 and it boasts 7000 merchant and corporate issuers of cards, a current 16 million cards and an aggregate float of more than $100 million.

The cards are variously used as loyalty, rewards, gift and payment cards, with corporate an almost equally branding part of the service. It helps greatly that Asian countries are tending to leapfrog the cheque system, not only because it is expensive and prone to fraud, but basically no longer necessary now that internet payment systems work well.

China’s fringe benefit concession on salaries is a key driver as well. Up to 14% of salaries can be paid tax-free to the employee. A tax invoice traces usage. As well as earning interest on the float of advanced funds and the merchant fee, Oncard also had the right to retain unspent amounts after a period. As the card base grows – already matching Australia’s card base – even the residuals will be significant.

Again, this can’t be described as simply a cash box. It has formed a joint venture with a technical subsidiary of the Bank of China. This company, Beijing All-Payments, is planning a national electronic payments and settlement system. Oncard intends to leverage its position more broadly into a pan-Asian card and payments system.

Profit rose sharply to June as momentum gathered pace. Earnings were just shy of 2¢ a share at 1.9¢ for a multiple of less than 8. Growth in the current year is unlikely to equal the early ramp-up 127% of 2008 but is expected to be solid. About $4 million of the cash held is in Yuan and US dollar-linked currencies, so in the past two weeks it has gained a notional 20% in value. Excluding the $100 million-plus float, Oncard’s cap/cash ratio is a strong 1.6:1. "