huntley's advise to accumulate

At its AGM management positively reaffirmed performance inline with expectations. Encouragingly, EBITDA growth experienced in 2H09 continues, driven by the introduction of direct charging. Transaction volumes, the main driver of revenue, are in line with expectations at around 90% of pre direct charging levels. Some of the volume decline attributable to falls in foot traffic should return as economic conditions recover. As we expected, with independent ATM operators now retaining a larger share of transaction fee revenues, merchants are applying upward pressure for a larger cut. Rebates increased on average by 3c per withdrawal across the network over the last year, adding $1.4m to $1.7m in expenses. Merchant rebates will continue to rise as contracts are renewed, but around 50% of contracts roll off in more than three years, meaning a gradual rise in average rebates. MD Tim Wildash is confident there remains room to lift transaction fees from the current $2 to more than offset pressure for higher rebates. Through tight cost management and capitalising on growth opportunities, management expects to achieve double digit compound annual EBITDA growth over 2010-2014. Growth strategy will focus on: * Branding arrangements rolling out branded ATMs under new and existing contracts with financial institutions, * NZ market increasing exposure to undeveloped independent ATM market, * Fleet outsourcing providing a fully outsourced service model to financial institutions, including installation and long-term management of ATM hardware, * Pricing policy increasing transaction fees to ensure adequate ROI, * Increasing ATM advertising, EFTPOS services and other automated services, * Acquisitions. Supporting its strategy to increase branding arrangements with financial institutions CUS announced a partnership with ATM manufacturer Nautilus Hyosung, giving it the Australian rights to distribute a range of its latest ATMs, reportedly the most cost-effective and advanced on the market. Branding existing ATMs or providing outsourced ATMs under finance lease arrangements requires no upfront capex and minimal operating capex hence providing strong cash flow generation. There are also better margins than if the terminals are operated unbranded. CUS also see the partnership as potential to drive other innovative initiatives. One example is using cash deposits to dispense cash, minimising cash replenishment costs. CUS also reports continuing progress in other revenues such as advertising and phone card recharging where it has secured contracts with Vodaphone, Virgin, Telstra, Optus and Crazy Johns. In addition to the proposed 8c capital return, CUS announced an on-market buy back of almost 10% of issued capital. Formal approval for the proposed capital return of 8cps is expected in January 2010. With net debt to equity of 18% as at 30 June, the company is financially sound. With current cash reserves of $18m up from $8m as at 30 June, and strong cash flow generation, the company could repay debt obligations falling due in March 2010. No adjustments are made for any more potential buy backs, as we expect excess capital to be used to grow the business. Our revenue growth assumptions are underpinned by bolt-on acquisitions, a continued rollout of ATMs in Australia and NZ and an increased contribution from branding and advertising. Management's optimistic double-digit EBITDA growth target from 2010-2014 is above our forecast of high single-digit growth. Management guidance appears achievable provided execution of its growth strategy, and its sound balance sheet adds comfort. Declining transaction volumes and negative reaction from consumers on pricing present some risk.