CPI cards group is an interesting company and worth keeping an eye on. Business is not going great. But perhaps there is hope. Let's start with an overview of the company:
"CPI Card Group Inc., formerly CPI Holdings I, Inc., provides Financial Payment Card solutions in North America. The Company is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which it defines as credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands in the United States, Europe and Canada. It is also engaged in the design, production, data personalization, packaging and fulfillment of retail gift and loyalty cards. Its segments include U.S. Debit and Credit, which produces Financial Payment Cards and provides integrated card services to card-issuing banks in the United States; U.S. Prepaid Debit, which provides integrated card services to Prepaid Debit Card issuers in the United States; U.K. Limited, which produces retail cards for customers in the United Kingdom and continental Europe, and Other, which has operations in Ontario, Canada and Petersfield, United Kingdom"
Revenues in their Debit and Credit card segment have fallen sharply since 2015. It seems like 2015 was a blockbuster year, which led to overstocking of cards by many major banks. That is the narrative. I am not sure what to make of it. But PMTS carries significant debt ($300MM+) so sharp changes in forecasted profitability lead to large drops in market capitalization. This entity is levered and its a manufacturing company (albeit with a sizeable service segment). It is, however, a nice easy business to understand. So we can easily analyze the business.
Here are some key points from the press release:
“Our third quarter results were below expectations, primarily due to continued softness in demand for EMV® chip cards and unfavorable foreign currency exchange rates. Partially offsetting the lower EMV demand in the third quarter was a sequential improvement in our EMV card average selling prices resulting from customer mix,” saidSteve Montross , president and chief executive officer of CPI Card Group . “As we look to the fourth quarter, we do not see EMV card shipments materializing at the improved rates we assumed in our prior guidance and, as a result, we are reducing the 2016 full year guidance range, primarily to reflect this softness.”
Now 2017 might be the year business starts to pick up. But overall, they are expecting 10-15% top line growth for 2017, which isn't that exciting given the huge drops they have seen since 2015. Valuation looks like it is on the cheap side (8X depressed 2017E consensus earnings) but since the business isn't doing great, I am not that excited. Let's see how their core business develops here. It is a commodity product (they actually show ASPs) and a manufacturing company, so not that exciting from a long term perspective.
"U.S. Debit and Credit:
Another comment:
Net sales for U.S. Debit and Credit for the three months ended September 30, 2016 decreased $23.6 million, or 32.5%, $49.2 million compared to $72.8 million for the three months ended September 30, 2015. The decrease in net sales was primarily due to a $17.0 million decrease in EMV related revenue and a $10.9 million decrease in magnetic stripe card and other sales due to the ongoing shift of card issuing bank customers from magnetic stripe cards to EMV cards, partially offset by an increase of $4.3 million from growth in card personalization and fulfillment. The decrease in EMV revenue is due to a reduction of EMV card purchases from large issuers and processors, reflecting the carryover impact of overstocked EMV card inventories purchased in 2015. For the three months ended September 30, 2016, we sold 22.6 million EMV cards at an average selling price (“ASP”) of $0.96 compared to 41.2 million EMV cards at an ASP of $0.94 for the three months ended September 30, 2015. The increase in ASP for EMV cards during the three months ended September 30, 2016 compared to September 30, 2015 is primarily due to customer mix."
I guess maybe sales of EMV cards will rebound and 2016 was just a slump after a bumper 2015. Time will tell. Hard to get too excited by a manufacturing business, but the operating and financial leverage make this a big potential mover. Could be above $10 again if EMV sales rebound. I'll wait for evidence.
Also, long term trend isn't in their favor, so not worth getting too enthusiastic here.
"CPI Card Group Inc., formerly CPI Holdings I, Inc., provides Financial Payment Card solutions in North America. The Company is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which it defines as credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands in the United States, Europe and Canada. It is also engaged in the design, production, data personalization, packaging and fulfillment of retail gift and loyalty cards. Its segments include U.S. Debit and Credit, which produces Financial Payment Cards and provides integrated card services to card-issuing banks in the United States; U.S. Prepaid Debit, which provides integrated card services to Prepaid Debit Card issuers in the United States; U.K. Limited, which produces retail cards for customers in the United Kingdom and continental Europe, and Other, which has operations in Ontario, Canada and Petersfield, United Kingdom"
Revenues in their Debit and Credit card segment have fallen sharply since 2015. It seems like 2015 was a blockbuster year, which led to overstocking of cards by many major banks. That is the narrative. I am not sure what to make of it. But PMTS carries significant debt ($300MM+) so sharp changes in forecasted profitability lead to large drops in market capitalization. This entity is levered and its a manufacturing company (albeit with a sizeable service segment). It is, however, a nice easy business to understand. So we can easily analyze the business.
Here are some key points from the press release:
“Our third quarter results were below expectations, primarily due to continued softness in demand for EMV® chip cards and unfavorable foreign currency exchange rates. Partially offsetting the lower EMV demand in the third quarter was a sequential improvement in our EMV card average selling prices resulting from customer mix,” said
Now 2017 might be the year business starts to pick up. But overall, they are expecting 10-15% top line growth for 2017, which isn't that exciting given the huge drops they have seen since 2015. Valuation looks like it is on the cheap side (8X depressed 2017E consensus earnings) but since the business isn't doing great, I am not that excited. Let's see how their core business develops here. It is a commodity product (they actually show ASPs) and a manufacturing company, so not that exciting from a long term perspective.
"U.S. Debit and Credit:
Another comment:
Net sales for U.S. Debit and Credit for the three months ended September 30, 2016 decreased $23.6 million, or 32.5%, $49.2 million compared to $72.8 million for the three months ended September 30, 2015. The decrease in net sales was primarily due to a $17.0 million decrease in EMV related revenue and a $10.9 million decrease in magnetic stripe card and other sales due to the ongoing shift of card issuing bank customers from magnetic stripe cards to EMV cards, partially offset by an increase of $4.3 million from growth in card personalization and fulfillment. The decrease in EMV revenue is due to a reduction of EMV card purchases from large issuers and processors, reflecting the carryover impact of overstocked EMV card inventories purchased in 2015. For the three months ended September 30, 2016, we sold 22.6 million EMV cards at an average selling price (“ASP”) of $0.96 compared to 41.2 million EMV cards at an ASP of $0.94 for the three months ended September 30, 2015. The increase in ASP for EMV cards during the three months ended September 30, 2016 compared to September 30, 2015 is primarily due to customer mix."
I guess maybe sales of EMV cards will rebound and 2016 was just a slump after a bumper 2015. Time will tell. Hard to get too excited by a manufacturing business, but the operating and financial leverage make this a big potential mover. Could be above $10 again if EMV sales rebound. I'll wait for evidence.
Also, long term trend isn't in their favor, so not worth getting too enthusiastic here.
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