Paypoint plc (LON:PAY) was the topic of conversation when DirectorsTalk interviewed Gervais Williams, Co-Fund Manager of Premier Miton UK Multi Cap Income Fund.
DirectorsTalk asked: PayPoint delivered record profits for FY26 while continuing to return capital through dividends and share buybacks, yet its valuation appears not to reflect that progress. Why do you believe the company is undervalued and what could prompt the market to reassess its investment potential?
Gervais noted: Like many of the other portfolio holdings, the key about this company is it’s generating surplus cash, and it’s generating good and growing income. It’s a combination of good and growing income plus the surplus cash, where if things turn out well for them, they could surprise on the upside in terms of income and surplus cash.
So, it’s a bit of a dowdy sector, let’s be honest. Collecting payments over the counter, mainly convenience sites, is a market which doesn’t sound that exciting. They’ve been expanding the range of services they offer; many of the PayPoint terminals, you’ll see them in the local corner shops.
Most particularly, as I say, they’ve generated plenty of surplus cash, that’s been a bit overlooked. Small caps have been under pressure over the last five years, there’s been general redemptions of UK weightings, and that’s meant that overhanging sellers have often not been met with new buyers.
The valuation, like many other companies in the UK, stands at a low value, and like many other small caps, stands at what we consider to be a very overlooked valuation. Let’s just remind ourselves that it yields 6.8% according to Bloomberg at the moment, and it pays special dividends occasionally on top.
So, we believe that it’ll get more recognition. As it gets more recognition, as people suddenly say, well, actually, I need to buy more income shares rather than just capital growth shares, these are the kinds of companies where even small amounts of extra buying, given that there are very few sellers, could lead to a surge in the share price.
Now, that depends a bit on the stock market, it depends a bit on international geopolitical events but most particularly, in the meantime, you get a good and growing income. That’s the lovely feature about this company and many others in the portfolio.
