strong growth sentiments declared, page-10

Yogi, as my grandfather used to tell me - only boring people get bored! ;)

Jokes aside. A few comments. In my numbers I am factoring in increases in variable costs:

(1) an increase in rebates to merchants up to 50cents per transaction in the next couple of years, nothwithstanding that CUS has said it doesnt think it will go that high. Dont forget that these increases will be quite progressive. Look at yesterdays broker presentation for a break down in contract life for ATM site contracts (first time they have released such info in such detail - as far as I can recall). Over half of the fleet still has a +3 year life on it, so for that part of the fleet as I understand it (unless there is provision in the K's to increase the rebate during the life of the K - more than say CPI increases anyway) rebates wont increase until well at least October 2012. As I said I am factoring in 50cent per tran rebate from 2012 however if this doesnt happen and its lower then that differential will flow through to the bottom line.

I am also factoring in an increase in bailment costs, due to the change in the interest rate cycle. CUS pay interest on their bailment facility at 75bps over the bank bill swap rate (which is closely related to the RBA cash rate). So as the RBA ratchets up interest rates in the coming quarters, CUS's bailment interest is going to increase. The 09/10 year will have an abnormally low bailment interest expense given the expeptionaly low level that the RBA cash rate reached during the period, although the RBA is now ratcheting up - November rate rise anyone???. For example in the 10/11 period I am betting on a BBWR of 5.75% or a bailment interst for CUS of 6.5%. To put things in perspective (on my numbers) each 50bps increase in interest rates translates to about an extra $500k in bailment interest expense for CUS. An intersting comment on this was made I think in the recent open briefing - where there was mention that CUS was looking into the ability to hedge against future interest rate rises - presumably by interest rate swaps. Cant get my head around the use of this sort hedging technique for a facility like a bailment facility, where the extent of drawdown will be all over the place depending on the amount joe public withdraws from machines (not like a convential loan with one drawdown and regular stable repayments). But if they can use it and they can lock in a low interest rate then expect further savings.

As for competition and extra fleets, well long term yes of course these are risks, however dont discount the value in exclusive contracted merchant sites. Whilst these are current CUS has prime convenience sites to themselves, so its quite a large barrier to entry. Ultimately if there are huge numbers of additional ATMs increased then this will have some impact, but given the maturity of the business, and the use of exclusive contracts, it going to be hard for a new player to come in and say install 5000 new ATMs in high value places. Hard well almost impossible really. Competition will come via consolidation by a large new player or existing player I think.

As for NAB and Rediteller, correct me if I am wrong however, this deal didnt result in a great deal of new machines, just rediteller rebranding their existing fleet as NAB ATMs. Given NAB customers are not tied up with CUS, there should be no new impact on transaction levels, for CUS as the alternative ATM has simply gone from looking like reditller to NAB.

Please dont be bored about BP/Bendigo - they have had that relationship for ages but was extended on improved terms in June/July this year. Says a lot for the potential of this arrangement when parties are willing to extend the life of the deal with CUS and pay CUS more. Basically, apart for a small tech spend for additional customer support and prettying up the machines, the cobranding money goes straight to the CUS bottom line. There is a little bit of cannabilisation in tran fee revenue as the cobranding customer uses the ATM for a smaller fee than Joe Public - but the branding fee more than makes up for it. As for the Ben/Adl deal -its a sign of things to come I would say, and as it covers 500 machines, could add an extra few million in revenue when fully rolled out (just speculated here and dont know the commercial terms). That doesnt sound like a lot in comparison to overall revenue, but dont forget as this pretty much flows through to the NPBT level then its very attractive!!

Agreed NZ has been on the cards for a while, but dont forget these things take time. Remember how long it took for DC to actually be introduced in Australia. At least direct charge is applicable from day 1 in NZ - I get the feeling that CUS is going to ramp up efforts in this quite soon - one of the recent presentations was talking about rolling out at some stage this year (they are on a pilot program presently).

I defintely think there are very good growth options, but of course there are risks, like any investment in a business.

Your point about a "killer offer" is VERY interesting. Just a hunch....? Given the cashflow conversion, and the piles of Cash CUS will be looking at, as well as the strength of its business, and current discount to fair value for its securities, then its probably ripe for an offer. If one is made, they better be prepared to pay absolutely top dollar for my shares. Another point, if there is 0% growth in CUS, and given management have brought in extreme efficiency to running the business - i.e. run on the smell of an oily rag (point being very little management efficieny improvements to be made on a takeover) why would someone want to make a takeover offer. Maybe you are trying to talk down growth options?

People sorry for the long and tortured posts. Have been off work sick for the last two days so have to kill the time somehow!