Guys I think you need to be careful with your back of the...

Guys I think you need to be careful with your back of the envelope comparisons between ICP and CUS.

Firstly a direct market cap comparison between ICP and CUS is problematic given the differences in the business models. CUS has streamlined its model so that revenue is pretty much generated strictly from ATMs, i.e. fees, advertising, branding etc. ATM fee revenue is only a part of ICP's revenue model: ICP is going down (I think) a riskier path of being a vertically integrated provider, and its revenue is generated from a number of components from ATM fee revenue to ATM manufacture etc. The RBA ATM payment reforms really juiced the CUS share price as CUS was 100% leveraged to the reform. ICP however only has a fraction of the number of CUS's ATM (which only form a component of its revenue generating model) so ICP doesn’t stand to benefit from the reforms like CUS. Whereas CUS revenue is likely to double (with costs remaining the same) only that component of ICP's revenue deriving from ATM revenue will double (or thereabouts). For all those making comparisons between ICP and CUS please for the credibility of your comparison indicate to what proportion does ATM fee revenue contribute to ICP's NPAT? What are your forecast increases in revenue and NPAT for 09/10 for ICP based on the payment reforms commencing 3 March 2009? I have had a brief look through the ICP accounts and think the disclosure could be much better in terms of breakdown in revenue and costs for each part of the business. The point is the increase in NPAT from 08/09 levels to 09/10 levels for CUS will likely be multiples of ICP’s increase.

A second major difference is the predictability in earnings. Not only is the CUS model a complete cashcow, it’s a very defensive business, with transaction numbers historically predictable etc which means that revenue are likely to be stable and relatively predictable. ICP only has a part of its business in this pie. I would have thought that the other revenue generators like ATM manufacture and sale are a lot more lumpy and unpredictable than ATM fee revenue; therefore overall the revenue of ICP is a lot less predictable. What happens if ICP bring out a dud ATM or loses contracts to other competitors, or its customers go broke or refuse to pay, just some flippant examples and there are probably plenty more but the point is there are more risks for this type of business than having an ATM placed on a site for an exclusive basis locked in for up to 5 years and earning fee revenue from predictable consumer habits where the there is absolutely no payment risk (as fee is deducted straight up from the ATM users bank account).

Another issue is position within the market in terms of being an ATM deployer. CUS (and Cashcard) are the dominant market players and with that stature and scale are going to be able to really squeeze down on smaller players by being able to offer better service (like 24 back office tech support) and product at rates (i.e. expenses to the business) far cheaper than players like ICP. ICP will want to provide outstanding service to its merchants or risk losing sites to bigger competitors. The trouble for ICP I think is that with its small scale it’s not going to be able to complete with players like CUS and certainly won’t be able to run its ATM deployer business as profitably as CUS. So in terms of risk I think there is more with ICP than CUS on this level.

Although not directly relating to the market cap comparison, I urge all ICP holders to have a closer look at last financial year’s income statement. What component did the income tax benefit make up NPAT? A very substantial part. At some point ICP will be paying full tax and won’t be able to use accumulated losses to flatter its bottom line. This really adds to the pressure to increase revenue to ensure that EPS is on a growth trajectory, because if it stays roughly the same (or only grows marginally) once ICP starts paying full tax relatively speaking its EPS could stumble big time. A final point relates to ICP’s management’s confidence in the business. Why do management hold so few shares. Now compare this to CUS management. Now there is a more useful and telling comparison.

I think the market appreciates all of this and it’s shown in relative share price performance since say January of this year. No hard feelings to ICP holders and wish you all the best, and hope the business goes from strength to strength but I think you need to be careful making any investment decisions on the value differential between ICP and CUS. As an aside people have also suggested that CUS is expensive at current prices. I don’t think that’s the case and think there is more upward room available in CUS share price. Here’s a thought, why don’t ICP holders hedge their bets and put some cash in ICP and CUS. To date I have been very happy with my CUS investment, and have no regrets in not sinking funds to ICP. Happy to receive constructive criticism of the above.