strong growth sentiments declared, page-3

lukentel,

was starting to think along similar lines and looked at CUS prospects more closely, and still think there is plenty of room for a nice return in 12 months (and potentially beyond):-

- 8cps cap return coming in the next month or so;
- Payout ratio on dividend yeild is stated to be 50-60%;
- Lets go with EPS of 30cps for 09/10 (a smidgen lower than OM forecasts but significantly higher than the credit suisse forecasts). I was originally forecasting 34cps but have revised that down and think around 30cps is spot on the money. So anyway going with a 55% payout ratio, divs paid within the next 12 months will be approx 16.5 cps (with the second half to be fully franked).
- Another thing to note is the stength of the Australian economy. A morningstar note I receivecd this morning said some economists were forecasting GDP growth of potentially 6% for the first half in Australia for this fin year. That is simply bonkers but even if half that growth is achieved the Australian economy appears to be really firing. This will have to find its way to trans volumes and is also supportive for equities. As Australia continues to improve economically, you would expect positive momentum to continue, which ultimately all things being equal you would think will lead to an expansion in PER multiples. My etrade account suggests CUS's sector PER is around currently about 12.97. With EPS of 30 cps on a PER of say 13 you get $3.90. If things stay positive its a far bet that the PERs will expand - maybe to 14? Who knows just speculating.
- I think a $4 price target in 12 months is achievable. From current s/p plus your cap returns and dividends you are looking at about a 35% return (with some franking benefits in there as well). Ill go out on a limb here and say that this is likely to beat the index in the next 12months so maybe you should think about keeping it in your portfolio - of course talk to your financial advisor about your particular circumstances. I know holders since Jan of this year have experienced quite simply exceptional returns, they really are abnormal and are exceptionally hard to achieve (and shouldnt be used as a reasonable benchmark) - however a 35% 12 month return is still a very very attractive return, particularly when you consider risk/return dynamics.
- One of my concerns was potentially static frowth from the 09/10 period - however on closer inspection, there are still plenty of growth options to look at;
*A big big driver will be tran fee. Currently CUS gets between 1.87 and 1.92 per value transaction (the discount from the $2 being a result of the wholesale rate incurred under the cobranding arrangements). Just to paint a picture (not saying it will happen but) if the average fee rate can be increased even marginally, it has a HUGE impact on the bottom line. On my numbers 10/11 EPS is coming in at about roughly 30cps (or roughly the 09/10 level). HOWEVER, if CUS was able to move the average tran fee to 2.12 (which i dont think would be totally rejected by consumers but may lead to an initial softening in tran volumes) then EPS is coming in at close to 38cps (if tran volumes are maintained). Thats a 26% increase in earnings and is only ONE of the growth options. Who knows maybe the average fee can be increased more? Of course there are plently of variables that would impact this, i.e. tran drop off rate on higher fees etc, just trying to highlight the POTENTIAL.
*Co branding is BIG, and doesnt really cost CUS a cent in extra capital committments - although may lead to increase costs for tech support etc. Its money for jam. The BP/St George Tie up is already a nice earner. CUS now has the Bendigo deal which will start to flow through more comprehensively in 10/11. Further as you'd probably know (if you are like me whenever you see a convenience ATM you try and determine if its a CUS atm) a lot of CUS ATMS are branded BoQ, in fact I think its heading close to half the fleet. Ive heard that this is set to be monetised to some extent from next fin year onwards. This is going to flow through to the bottow line.
* Another big area I think is advertising. CUS hasnt really exploited this to its full potential to date. However it looks like they are set to fully exploit the potential with their JV they have organised with an advertising agency. Again the capital costs for this are minimal so should flow through straight to the bottom line;
*Another growth area is NZ. I think I read in one of the broker reports that the NZ market is close to the size of the Victorian market which contributes (I think - need to double check) about 1/5 of CUS revenue. Best case scenarios if CUS can fully exploit that in future years, then you are potentially looking at CUS earning a proportion (they are in a JV and dont currently own a huge chunk of the NZ company but have an option to purchase a greater interest) of 1/5 of current NPAT (using a really rough yard stick here), so very best case scenario you are looking at roughly an extra 6cps (on some rather large assumptions which obviously are frought with difficulty).
- So say in the next couple of years, CUS is able to increase EPS from 30cps to 40cps, if you apply your 13 PER then you do the math.
- Obviously there are big risks as well and costs pressures including the change in the interest rate cycle (think bailment interest increasing as rates ratchet up), increase merchant rebates, reduction associated with changes in gaming legislation (VIC first but other states to follow???) along with greater competition due to the very attractive margins currently available to those in the industry. Not saying that CUS will get anywhere near 40cps in next 2-3 years but trying to point out the growth options are available and if properly executed, and all things go CUS's way its possible.

My point is I am hanging in for the moment and think CUS is a good buy at current levels! But DYOR and consult your licenced and qualified advisor and dont rely on my comments....