Payments firm could produce more cash

PAYPOINT has had a tough few months. The company provides essential services for convenience stores, such as gadgets for cashless payments and high-tech tills.

PayPoint has contracts with big online retailers too, so consumers can go to their local corner shop and collect parcels from the likes of Amazon or eBay.

Customers can also pay utility bills using PayPoint kit and top up mobile phones.

PayPoint was a Woodford favourite, so he owned around 15 per cent of the company when the Equity Income Fund was suspended. Some of that has been sold but the fund is still a near 10 per cent shareholder.

In July, the group lost a contract with British Gas, which decided to cut costs and offer customers a less comprehensive service. The move will not have a huge effect on revenues but it unnerved investors. And last month, chairman Nick Wiles announced that his chief executive was unwell and will probably be off until at least Christmas. The three events have seen PayPoint shares fall almost 17 per cent from a shade below £11 to £9.05. At this price, they are a bargain.

PayPoint operates in around 28,000 stores, including McColl’s, Nisa and thousands of smaller independents. This section of the market is growing and PayPoint is uniquely placed to benefit, as more than 90 per cent of the UK population lives within a mile of its services.

Group sales are rising and the firm pays a chunky dividend, 82.9p last year, with almost 84p pencilled in for 2020.

MIDAS VERDICT: PayPoint shares have been caught up in the Woodford debacle but, at £9.05, the stock is too cheap. Shops are buying more PayPoint services, the parcels division is expanding fast and the shares are now on a 9 per cent yield. Whatever happens as the Woodford stake is sold off, the stock has long-term potential.