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Summary

"Higher One Holdings" is coming out with an IPO and is offering 3,103,822 shares while the selling stockholders are offering 11,146,178 shares with a price band of $15 - $17.

Since its inception, company is focused on providing disbursement management solutions (OneDisburse service) for higher education institutions in US. Its solution facilitates the institutes to manage the financial transactions with its students mainly to pay refunds and financial aids to students while complying with the federal regulations.

After acquisition of CASHNet in FY 2009 it also provides other set of solutions (payment products) that facilitates billing, payment, personalize payment plans, e-market etc.

For students and other campus community members, it offers OneAccount service that includes an FDIC-insured deposit and a tailor-made debit card, "OneCard",  providing students with convenient and faster access to disbursement funds.

Company core business i.e. "OneDisburse" service and "OneAccount" service has shown significant growth during last few years, OneDisburse now serves 14% of students at higher education institutions and there are 1.2 million OneAccounts holders as on 31, March 2010. Its payment products solution (CASHNet) serve 12% of these students. Company is still in growth mode with hugh untapped market.

Company has shown an excellent growth in revenues from 27.9 millions in FY 2007 to 75.5 millions in FY 2009  due to significant growth in its core operations and acquisition of "CashNet" (see Operational Performance/Growth). Net income has also show growth inline with revenues from 2.2 million in FY2007 to 14.2 millions in FY 2009.

Although its main business is to serve higher education institutions to manage financial transactions with students. But it earns its main revenues from  OneAccount service.

Though OneAccount service is a free service and basis purpose of the service is to allow students to receive their reimbursements/refunds, but when the onecard is used as a debit card company impose different types of fees and charges to earn revenues.

Offer Valuation

At $15 - $17 per share company values itself anywhere between $829.76 million- $940.40 million. 

This implies company is available at FY 2009 PE ratio of 58 - 66.

This implies company is available at FY 2010 (annualizing Q1 FY 2010) PE ratio of 25 - 28.

In past company has shown a excellent growth in its operations and so in its financials. Company has been able to show this growth due to its complete product offering, largely unaddressed market with no real focused player and also due to acquisition of CashNet. Company is still in a growth mode as addressable market for companys' products is large and expanding

Company Expectations

• Company is expected to maintain its past growth momentum atleast for next few quarters due to increase in product offerings and hugh untapped market and also due to well established business relationships.
• Profit margins are expected to rise due to scaling up of operations.
• Competition will rise also not only from product development companies but also from banking/debit card companies which can offer services like "OneAccount service" an major revenue earner for company.
• Cross selling opportunity will increase due to more product offering after CashNet acquisition.

Negatives

• Expected rise in competition 
   
• Regularity issues Company earns a big part of its revenue from "OneAccount" service (a tailor-made banking and debit card service). This sector is always under regularity lens any adverse regulations can effect company negatively.
   
• Lack of innovation & technological upgrading Software products needs constant upgrading with new technologies and innovation. Any lack of innovation at company level can hurt company badly.

Positives

• Well established product suits.
   
• Timely and product enhancing acquisition of "CASHNet"
   
• Hughly untapped industry with largely unaddressed market. The U.S. higher education industry consisted of more than 6,500 institutions serving more than 18.6 million students. Over 2.5 million new students enter U.S. higher education institutions each year which is hugh potential market for company.

• High expected future growth.
   
• Expected rise in profit margins due to scaling up of operations.
   
• More cross selling opportunity due to more product offering after "CashNet" acquisition.
   
• High level of client and customer satisfaction. Company maintains over 97% retention rate since 2003 among its higher education institutional clients, including clients of CASHNet, demonstrates the level of its client and customer satisfaction.
   
• Predictable Revenue Streams. The majority of its revenue each year is generated through existing relationships with higher education institutions and their campus communities. For example, in 2009, excluding revenue generated by its recent acquisition of CASHNet, it generated over 90% of its revenue from contracts signed in prior years.

For full article http://iponew.freehostia.com/higheroneholdings.htm

This article reflects personal view of the author about the company and one must read offer prospectus and consult its financial adviser before making any investment decision

Disclosure: No positions