Situation
3PEA International in the prepaid debit card market and has grown rapidly in the recent quarters. Insiders own half of the company and Dan Henry, ex CEO of Netspend, recently became chairman of the board. Dan Henry sold Netspend a prepaid card business for $1.4 bill to TSYS.
Meeting highlights
Business
Per the 2015 10-K: 2015 annual report: We have developed prepaid card programs for corporate and incentive rewards including, but not limited to healthcare reimbursement payments, pharmaceutical co-pay assistance, donor payments for source plasma and automobile dealership incentives. We are expanding our product offering to include additional corporate incentive products, payroll cards, general purpose re-loadable cards, travel cards, and expense reimbursement cards. Our cards are offered to end users through our relationships with bank issuers.
The 10-K doesn’t indicate that they are concentrated in the Plasma donor business. Their plasma donor business is big according to a research report. The plasma donations are expected to grow at 6-8% according to the industry. The Plasma collection and donation business is consolidated amongst three players and it is vertically integrated. This reduces the selling expenses for TPNL but creates customer concentration.
Why don’t other payment service providers like Greendot, Black Knight, Netspend get into the business. Citibank got out of the business and sold to the other major player Wirecard.
Are switching costs high? Are they integrated with their customers.
Valuation: The business has grown recently. If it continues to grow at the ~20% for the next ~4 years the revenues could double and at ~30% EBTIDA margin the EBITDA could quadruple. It will go from ~30x EBITDA to 7.5x EBTIDA and the payment processors trade at ~15x.
Management and insiders own half of the business. Dan Henry joined as Chairman of the board. He has a good track record that he sold Netspend prepaid card business for $1.4 bill so he must see something of value. Here is a video.
The latest 10-Q on page 11 shows 1.5 mill shares granted to to Dan Henry at a price of ~$1 per share. It shows liberal grants of shares including 5 mill shares on Nov 2016.
Catalyst: The stock was up listed to NASDAQ recently. Business continues to grow.
Downside
The growth of existing business may already be priced in and the company does not win additional business in the expected growth areas.
The auditor Squar Milner is unkown. Here is a PCAOB Inspection report. 2015_Squar_Milner
Poll; Long 1, Short 0, Pass 7.
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