Hi
@willsurry2015,
No problem.
You wrote;
It amazes me though that everyone is just brushing off the margin story, yes of course ATM growth in India is big etc.. these guys can win heaps of contracts but they are losing money on their ATM's, and have been for years, what gives you confidence this will change?
Not me.
I've covered this numerous times before, hopefully this post will answer some of your questions / concerns.
Firstly, there has only been one research report since March 2014 and there have been quite a few positive and significant developments since then.
The Independent Investment Research Report highlighted that whilst the company view TSN as a potentially high growth investment, with revenue growth exceptionally strong, TSN are still yet to translate this to earnings. To address certain issues, the company will need to:
1. Increase the number of ATMs online.
2. Increase the number of banks online.
3. Increase transaction volume per year.
4. Increase percentage revenue fee.
5. Renegotiate ATM contracts with banks.
6. Improve margins.
7. Cut costs.
8. Adjust to and factor in high rate of inflation in India.
Ok, let's have a look at these items one by one.
1. Increase the number of ATMs online - At the time of the report, the number of ATMs online were 1100. There are now over 2000 ATMs online with 300 ATMs from last contract to still come online - total soon to be 2300 ATMs with ONLY 3 existing banks. That will be over double the number of ATMs in just two years. Note, this excludes latest 11,000 ATM deal. TICK.
2. Increase the number of banks online - NOT YET. However, this could change should TSI India objectives materialise i.e.: to rapidly expand their fleet by either (a) managing small to mid sized banks ATMs or (b) buying back existing banks ATMs as highlighted in previous Operations Update. Note, this excludes latest 11,000 ATM deal. TICK.
3. Increase transaction volume per year - Approaching 100M transactions on current 2000 ATM fleet. The research team highlighted that transaction volume will be one of the major keys to improve margins and as we can see, transaction volumes have increased substantially. Cost reduction initiatives are already assisting the company in addressing margins. With new high profile CFO appointment, this should only improve. ATM business and ATM market is expanding. Add to that the new Government initiatives that are underway i.e., Jan Dhan Yojana and transaction volumes are expected to increase. Note, this excludes latest 11,000 ATM deal. TICK.
4. Increase percentage revenue fee - Based on latest Operations Update, averaging AUD $0.20c per transaction. An increase of approximately AUD $0.05c since two years or so ago I believe. Note, this excludes latest 11,000 ATM deal. TICK.
5. Renegotiate ATM contracts with banks - Managed to increase ATM contracts/deals (between 3-5 new contracts/deals) with the three existing banks over the years. Testament to how timely & efficient they are able to rollout new and bigger projects. As I have been re-iterating, re-rates usually occur when new big deals are awarded, but when existing clients come back for seconds and thirds, that to me signals a MAJOR re-rating event. TICK.
6. Improve margins - As per point #3 above. As highlighted in the Operations Update dated 20/03/14,
"TSI India believe cost reduction initiatives will assist in addressing margins as the business and ATM market expands". Note, this excludes latest 11,000 ATM deal. TICK.
7. Cut costs - As per point #3 & 6 above. TSI India have already managed to replace physical guards at all their 2000 ATM sites with electronic surveillance and power management solutions. These two 'systems will be big selling points in negotiations with prospective banks and may very well be the differentiators between their peers. TICK.
8. Adjust to and factor in high rate of inflation in India - The high rate of inflation in India in November 2013 was at an all time high of 11.16% and the last time I checked it dramatically decreased to an all time low of 5.17% give or take. That's quite an impressive drop. As per announcement on the 02/12/2014, you will note that this together with cost reductions, cost reduction measures in place, transaction volumes and ATM deployments on the rise, should (fingers crossed) translate into earnings over the long run. TICK.
Additional improvements/developments:
* With the latest deal awarded to manage and operate 11,000 ATMs that are already on the market in India, IMO this deal will be transformational for the business. I believe this kind of agreement may only be the beginning. Do you think TSI wouldn't be able to 'replicate' this business model out across other potential companies with ATMs that are looking for an experienced ATM outsourcing company with a world class platform to manage these? This is a platform we are talking about that has just increased the size of ONE part of their business by 5.5 times its previous size. There's nothing to say this same business achievement can't be replicated across to what TSI are working diligently on and towards with the current i-Pay Kiosk business model they are looking to present to other Utility companies. The there's the e-surveillance / power management side of the business. They already have these systems installed across their very own 2000 ATMs. They recently won their first 500 site e-surveillance contract with Andhra Bank with potential for another another bank. Refer to last few company announcements. Then we have e-commerce and m-commerce possibilities. IMO, the company's current fleet could easily increase to 50,000 in a very short time if this agreement is any indication of what's actually possible. For that we'll have to wait and see, but going from 2000 ATMs to 13,000 ATMs is not something that is achievable without an experienced world class team or technology.
* TSI India have increased their gross revenue over the past year. Almost a year ago it was sitting at AUD $4M last quarter x 4 quarters = AUD $16M per year. Recurring gross yearly revenue is now at TSI India's highest it's ever been. I believe this gross recurring yearly revenue should be close to or even higher than $20 million per year. TICK.
* CX Partners now by their side to them help leverage what they're aiming to achieve: strong expansion of the ATM side of business, they now have the funding and cash flow in place to help them materialise this objective and the contacts to reach a broad market. One only has to look at the latest 11,000 ATM deal awarded. TICK.
* Managed to win bigger ATM contracts that only keep growing in size that are now adding to the bottom line. Recently turned cash flow positive remember. Note, this excludes latest 11,000 ATM deal. TICK.
* Won 2nd ATM Installations in selected cities with existing banks. TICK.
* A Utilities Bill Payment/Kiosk machine business that only makes up approximately a little over 10% or so of TSI India's business. Plenty of room to ramp things up. New contract awarded in July 2015 to TSI India for 200 E-Kiosks with another high profile client. That takes the number of clients to 16 in this space. Previous clients total number of machines was at 200 bill payment/kiosk machines. Their latest contract deal was 200 E-Kiosks on its own. No-where near as expensive or time consuming to get these up and running. LOT OF ROOM TO GROW. TICK.
* TSN - Cash on balance sheet = a little over $2 Million. TICK.
As I have been highlighting over the past year, the next Independent Research Report is going to paint a much different picture than two years ago imo.
There are quite a few TICKS since that last report 2 years ago!!
Hope this helps.
Tony
