CCRD - CoreCard Bets On New Platform Development For Future Growth

2023-03-29 14:24:57 ET

Summary

• CoreCard Corporation reported its Q4 2022 financial results on February 16, 2023.
• The company provides a range of financial payment processing API, software and related services.
• CoreCard is shifting its focus from licensing toward processing and is building a new platform.
• Risk remain for its new platform and in broader macroeconomic factors, so I'm on Hold for CoreCard Corporation in the near term.

A Quick Take On CoreCard

CoreCard Corporation ( CCRD ) reported its Q4 2022 financial results on February 16, 2023, beating revenue and EPS consensus estimates.

The firm provides a range of payment processing services to businesses and consumers located in major global regions.

Since the stock looks fairly valued at around $28.00 and risks remain on the company's new platform development efforts and near-term macroeconomic outlook, I’m on Hold for CoreCard Corporation in the near term.

CoreCard’s Overview

Norcross, Georgia-based CoreCard Corporation was founded in 1973 and provides a variety of financial payment technologies and related services to companies primarily located in the U.S., Europe and the Middle East.

The firm is headed by president and CEO Leland Strange, who was previously president of Quadram Corporation and has held board positions on numerous financial industry companies.

The company’s primary offerings include the following:

• Service API

• Various debit and credit cards

• Buy now, pay later programs

• Loyalty programs

• Software solutions

• Accounts receivable and loan transitions

• Private label products.

The firm acquires customers through its direct sales and marketing efforts as well as through partnerships and partner referrals.

CoreCard’s Market & Competition

According to a 2019 market research report , the market for payment processing services is expected to reach $62.3 billion by 2024.

This represents a forecast CAGR of 9.9% from 2019 to 2024.

The main drivers for this expected growth are continued growth in the number of merchants seeking integrated payment processing solutions and the entrance of new market participants with new technology offerings.

Major competitive vendors include:

• PayPal

• Global Payments

• Block

• Wirecard

• Visa

• Jack Henry & Associates

• Paysafe Group

• Naspers Limited

• Others.

CoreCard’s Recent Financial Results

• Total revenue by quarter has proceeded according to the following trajectory:

• Gross profit margin by quarter has trended lower in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have trended lower in recent quarters, a positive trend indicating the company is getting more efficient at generating incremental revenue:

• Operating income by quarter has varied widely, remained positive but year-over-year operating margin has dropped:

• Earnings per share (Diluted) have trended lower recently:

(All data in the above charts is GAAP.)

In the past 12 months, CCRD’s stock price has risen 1.9% vs. that of the Nasdaq 100 Index’ fall of 14%, as the chart indicates below:

As to its Q4 2022 financial results , total revenue rose 21.5% year-over-year and gross profit margin dropped 4.4 percentage points as it has trended lower in recent quarters.

SG&A expenses as a percentage of total revenue have trended lower, a positive sign. However, operating income has varied greatly while earnings per share have been dropping.

For the balance sheet , the firm finished the quarter with $25.4 million in cash, equivalents and short-term investments and no debt.

Over the trailing twelve months, free cash flow was $1.2 million, of which capital expenditures accounted for $8.7 million. The company paid $0.2 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For CoreCard

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:

Assuming generous DCF parameters, the firm’s shares would be valued at approximately $29.08 versus the current price of $28.03, indicating they are potentially currently more or less fully valued, with the given earnings, growth, and discount rate assumptions of the DCF.

Future Prospects For CoreCard

In its last earnings call ( Source - Seeking Alpha ), covering Q4 2022’s results, management highlighted its elevated development expenditures as it is building a new platform that it says is a "key component to future growth."

Presumably, that is referring to focusing its attention on building out the processing business rather than the licensing.

Management expects to see 20% to 30% growth in the processing business in 2023.

Looking ahead, the firm expects headcount to stabilize in 2023 after significant growth in this regard in 2022.

Regarding valuation, my discounted cash flow calculation suggests the stock may be fully valued at its current price of around $28.00.

The primary risk to the company’s outlook would be a delay in the buildout of its new platform, which is important to its future growth plans.

Since the stock looks fairly valued at around $28.00 and risks remain on the company's new platform development efforts and near-term macroeconomic outlook, I’m on Hold for CoreCard Corporation in the near term.

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