Hightech Payment Systems, a Moroccan company that offers digital payment solutions, is popular with investors on the Casablanca Stock Exchange, where it is listed. Yet the company's profits are growing less quickly than investors' projections.
With a share of 4,770 dirhams ($ 515.9) at the closing of the Casablanca Stock Exchange on September 18, 2020, the Highech Payment Systems (HPS) company achieved a solid performance on the Moroccan financial market. Its value is up 27.1% since the start of the year, according to market data collected by the Ecofin Agency. Over the past 5 years, it has grown by 1182%.
This is a rare performance for a company which when it went public in 2006 was only worth 850 dirhams per share. According to analysts quoted by the Moroccan media Leboursier, this progression is justified and should continue. “Today, the course is fully justified by the fact that it is a company which grows very quickly and which is in an extremely promising sector: that of electronic payment. Beyond that, HPS is among the best in the world in this area in terms of product quality, ”explained one of them.
Indeed, the digitization of payments is gaining ground in almost all countries of the world and this gives positive prospects for companies like HPS. Its performance is generally good, with a return on equity which over the last three years has been above 20%.
The shareholders were also well rewarded with a dividend which was regularly paid for the periods from 2005 to 2018 (except in 2011), with a peak remuneration of 50 dirhams per share in 2018.
But a closer reading of the performance of this group of technology associated with finance should call for more caution. Its price-to-earnings ratio (PER), an indicator that shows how long the annual profit of each share can cover a company’s stock market value, is currently 35.8x, according to estimates by S&P Global Ratings Capital IQ platform. This means that at the current level of earnings, it will take 36 years to reach market value.
This information is important because the stock market value of companies is logically the expression of the income prospects that investors expect. For this wait not to be long, earnings would need to continue to grow vigorously.
While HPS shares have jumped 1182% on the Casablanca Stock Exchange since 2015, its profit for fiscal 2019 was only up 23.9% over a five-year period. A declining performance, as 2017 profit was up 31.7% on the same basis.
Finally, no one can predict exactly what the market for payments systems will be like in the next 30 years or how competitive it will be. Innovation in the field is increasing and new competitors could emerge.
In this logic, the stock market value of HPS is not far from being overvalued compared to its real potential, and in light of recent trends in the strength of its performance. The real winners are the historical shareholders who are currently generating significant capital gains.
Source Ecofin Agency