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Ezeatm Ltd: Rapid Local ATM Revenue Growth Paves Pathway Into Indonesia

EZEATM Limited (ASX: EZA) listed on the ASX in October of 2011, and has established itself as an innovative and very fast growing Western Australian company that provides financial services via independently owned ATM's.

The Company has advanced from being a regional deployer of ATM's in the Western Australian market to the largest ASX listed deployer of ATM's and an ATM switching provider; as well as being the exclusive distributor of cashPod ATM's and ATM products in Australia.

The Company recently announced an agreement to expand operations into both Indonesia and Nepal and is seeking further overseas growth opportunities.

Share Price: $0.45
Market Cap: $29.25M
Issued Shares: 65.0M
Cash: $1.17M (Sept)

ANALYSIS - FORECAST EBITDA INCREASES 500% FOR 2012 OVER 2011

EZEATM was the third most successful IPO of 2011, with shares issuing at $0.20 and reaching $0.47 at the end of the calendar year, for a gain of 135%.

The Prospectus announced an EBITDA of $0.25M for over 1 million transactions, and was on track to report an annualised EBITDA $1.0M at the end of 2011.

The Company has now out-performed through these prospectus forecasts reporting revenues of:

- $0.40M for the first December quarter,
- $3.45M for the March quarter,
- $4.14M for the June quarter, and
- $4.4M for the September quarter;
- The Company is now forecasting an annualised EBITDA of $5.0M, a 500% increase over the forecast made in the recent Prospectus.

This growth comes mainly from the January completion of the iCash Australia acquisition, and from an additional 400 new sales generated by a new national sales team since January 2012.

The recently announced agreement to enter the Indonesian market is expected to add $85.0M in gross revenues over the initial four year term and provide very significant upside in additional revenue and EBITDA growth.

New contracts signed with Muzz Buzz, Topz Shopz, DIB Group and Metcash have increased the number of potential ATM sites by +900, and will lead to a significant number of new ATM installations from the current base of +2,000 ATM's.

Direct Cash Payments (TSX: DCI) recently entered the Australian ATM market with the acquisition of CustomersLimited for a total of $269M and secured approximately 5,400 ATM's at an average cost of approximately $50,000 per unit.

Applying the valuation metric that Direct Cash paid per ATM to the 2000 ATM's currently held by EZEATM would produce a valuation for EZATM of $90.0M, or $1.38 per share. This is relative to current EZEATM share price of $0.45.

We see significant growth potential for EZEATM, as well as potential suitors eyeing the platform developed by EZEATAM and possible corporate appeal.

The current market valuation of $0.45 per share severely discounts the true value of the business, and makes no allowance for the growth potential in the Indonesian market, or additional revenue streams flowing from ATM advertising, maintenance contracts, pre-paid phone services, loyalty cards, pre-paid debit cards, acquisition of other ATM networks, or additional international opportunities.

BOARD AND MANAGEMENT TEAM

Mark Jones serves as Chairman and Non-Executive Director, and is also a Non-Executive Director of Private Clients at Patersons Securities Limited, and Managing Director of Oakajee Corporation Limited. He has raised capital for many companies from IPO through to cash flow, and has over 20 years of experience in equity markets and business.

Todd Zani serves as Chief Executive Officer and Executive Director, and is a Chartered Accountant with over 20 years of experience that included the development of Ezetax Pty Ltd, an accounting firm he founded in 1999 that specializes in creating wealth by providing financial, accounting and taxation services. He has extensive experience in the Australian ATM market which includes the founding of the EZEATM business with his brother Chad Zani in early 2000.

Chad Zani serves as Managing Director and Executive Director, and has extensive experience in the Australian ATM market that includes the development and sale of a private ATM network to ATM Solutions Australasia Pty Ltd, and co-development of the EZEATM business. He is a director of the Bartercard WA franchises, which are part of the world's largest trade exchange business, has over 15 years of experience in sales and management, and founded Ezepos which is an EFTPOS facilities business that services over 17,000 sites in Australia.

Graham Anderson serves as Company Secretary and is a Chartered Accountant with over 30 years in audit and related corporate services; and is a Director and Company Secretary of numerous other ASX listed companies.

SHAREHOLDING AND FUNDING

The top 20 shareholders control 74.96% / 48.54M shares, with Directors holding 22.4% / 14.6M shares; 42.5M of these shares are publicly traded, and 22.5M remain unlisted for a total of 65.0M shares.

The Company has issued 4.0M unlisted options that are exercisable at $0.20 per share and are performance based.

FINANCIALS

The recently completed September quarter reported record revenues of $4.42M which included interest of $0.01M; and outgoings included $0.711M for staffing costs, $0.045M for advertising and marketing, $2.742M for capital expenses that resulted in a total of $0.872M in net operating cash flows (cash flow positive).

The iCash purchase was completed in the March quarter at a cost of $16.0M and was funded through an equity raise of 25M shares at $0.40 for $10M, short term debt facility of $4.0M from the National Australia Bank and cash of $2.0M.

The short term debt facility is currently drawn down for $3.334M, and the NAB has agreed to provide 50% of the capital expenditure on new ATM's from this debt facility.

Cash held at the end of the September quarter was $1.178M.

EZEATM ATM BASICS

The heart of the EZEATM business is built around the fees generated by Customers who utilize ATM's owned or operated by the Company.

Each time a Company operated ATM is used by a customer it generates a minimum $2.00 direct charge for each transaction, and results in a $0.20 "switching fee" for transferring the funds in the transaction from the customer's financial institution and into the bank account of EZEATM and or EZEATM's cash fulfilment partner.

An additional fee of $0.30 to $1.00 is paid to the site owner or cash fulfilment partner and is based on the transactional volume flowing through the particular ATM; and results in a $0.80 to $1.50 gross profit to EZEATM at the conclusion of each transaction.

The Company owned ATM's are highly reliable and have been designed for the Australian market that include a high speed communications system and continuous around the clock customer support.

The ATM's carry customized signage for branding and greater visibility, and will include on screen advertising. Additional value added services will include a web portal and iRAM which is a remote ATM management system.

RECENT EZEATM HISTORY - SUCCESFUL LISTING IN OCTOBER 2011

EZEATM listed on the ASX in October of 2011 and at that time was the largest and longest lived private network ATM operator in Western Australia; and has very quickly developed into Australia's largest Australian owned and independent ATM deployer. The oversubscribed IPO garnered $3.5M at $0.20 per share with the issue of 17.5M shares to fund a nation-wide expansion programme for an integrated and branded roll out.

In November of 2011 EZEATM acquired the Australian ATM operations of iCash Payment Systems (ASX: ICP) for $16.0M, and boosted the combined business operation to over 1,700 ATM's. This is forecast to generate in excess of 10M annualised transactions and produce an EBITDA of $5.0M.

EZEATM recruited key personnel from iCash and commenced development of a national sales team, technical support staff, and renegotiated agreements for existing ATM's. The Company also established new office and warehouse facilities in New South Wales, Queensland, Victoria and South Australia to service the needs of the vastly expanded business operations.

In January of 2012 the Company announced an agreement with Muzz Buzz for a venture to establish drive through ATM's. Muzz Buzz is a Western Australian Company that owns a nationwide franchise network of 45 drive through coffee shops and is expanding rapidly.

In March of 2012 the Company established a national sales team and completed a successful launch at the Queensland Hospitality and Gaming Association. EZEATM announced nationwide sales of 99 new ATM's by the end of the same quarter, which is a 10% increase in the number of active ATM's operated by the Company.

The June quarter saw an increase in the pace of sales of ATM's to 120 units, completion of nationwide IT and telephony rollout and review, and establishment of competency testing and training of technicians for the rollout along with improvements to the help desk.

The Company is also completing a national review of application of wireless technology for ATM's with a decision expected in second half of the current calendar year.

At the end of the June financial year the Company had 1,862 sites on its ATM network, and was generating approximately 11M transactions on an annualised basis.

In September of 2012 a 5 year agreement was signed with First Data International for provision of management, switching, driving and operational support to all EZEATM ATM's in Australia. This agreement is expected to reduce processing costs or "switch fees" by $1M over 5 years, and will provide the Company with a competitive advantage.

In October of 2012 a 5 year agreement was signed with Topz Shopz for the provision of ATM's, related products and software for 66 stores in South Australia.

The September quarter of 2012 reported revenues of $4.42M which was an increase of 6.6% over the previous quarter of $4.14M. The Company reported net operating cash flows of $0.872M which was an increase of 48.6% over the previous quarter of $0.586M.

In November of 2012 an agreement was secured with the DIB Group as a preferred supplier of ATM's. DIB Group trades as Metro Petroleum Group and has around 140 sites in New South Wales, Victoria and ACT; and is one of Australia's largest independent service station franchises.

The ATM's will also be equipped with advertising and provide coupons that are aimed at increasing sales at all locations.

In November of 2012 an agreement was secured with Metcash Ltd as preferred provider of ATM's. Metcash is a $3 billion entity that has become Australia's leading wholesale distribution and marketing company and owner of Metcash Food and Grocery, Australian Liquor Markets, Mitre 10 and the Automotive Brands Group.

EZEATM currently has 237 site contracts with Metcash, and is seeking to expand this to 1,000 sites by the end of the current contract term.

RELATIONSHIP WITH iCASH AND NEOICP

EZEATM has developed a good working relationship with iCash Payment Systems Limited (ASX: ICP) which vended the ATM's in the recent iCash Australia transaction, and is also the owner of a majority voting interest in NeoICP of Korea.

This Company is South Korea's largest independently owned ATM supplier with greater than 50% market share of the independent ATM market and a greater than 80% market share of currency handling settlement systems. NeoICP has developed world leading cash handling technology, products and proprietary settlement systems, and has placed 15,000 active devices in South Korea at leading financial institutions and companies.

EZEATM has signed an exclusive 5 year Distribution Agreement for the purchase of 2,000 ATM's and ATM related products, parts and software manufactured by NeoICP. The new agreement has reduced the purchase price of manufactured product by 29% and represents a saving of $4.4M for committed purchases; and both parties look forward to a close working relationship that will see both near and long term benefits.

EZEATM EXPANDS OPERATIONS INTO HIGH GROWTH INDONESIAN MARKET

In July of 2012 EZEATM announced the signing of an exclusive 4 year agreement to supply a minimum of 16,000 ATM's over a 4 year period to the Indonesian market via ASEAN ATMs, which is an Indonesian Company that is based in Jakarta.

The agreement calls for the supply of ATM's and ATM related products, parts and software that is expected to generate in excess of $85M in gross revenues over the initial 4 year term.

Negotiations involved a number of key industry participants that included a close working relationship with NeoICP, which will manufacture and provide cashPod's, and establishment of an Indonesian technical and management team that will customize EZEATM technology to meet Indonesian certification.

This is tasked to the Bank of Indonesia that also oversees the EMV migration mandate that is a global standard established to handle payments via Europay, MasterCard and VISA using integrated circuit cards or chip cards, point of sale terminals and automated teller machines for authenticating credit and debit card transactions.

The Indonesian market has a population of over 240 million people that currently use approximately 60,000 ATM's and is predicted to have very significant growth potential for additional ATM's along with upgrades to the existing ATM infrastructure that does not meet the EMV standards. The cashPod is already an EMV compliant device.

By comparison the Australian market has a population of around 23 million and has a developed ATM infrastructure of around 35,000 ATM's that are EMV compliant for debit and credit cards.

The global shift to EMV compliant ATM's is forecast to grow by more than 40%, and the Asia Pacific region is expected to grow at a faster rate of 61% according to the Retail Banking Research for Global ATM Markets and Forecasts to 2013.

TIMELINE AND CATALYSTS

- Establishment of Indonesian operations underway that will lead to very significant and ongoing growth in a major Asian market, and potential for further international expansion into South East Asia, Nepal, and New Zealand.

- Exclusive Australian distributorship established with Neotk that will allow for market leading real time monitoring of ATM's via iPhone and web based PC's; and provide EZEATM with a significant market advantage for additional growth.

- Rapid growth continues with new agreements with Muzz Buzz, Topz Shopz, DIB Group and Metcash providing +900 additional ATM sites for development.

- Additional revenue streams under consideration include ATM advertising, pre-paid phone service, debit and loyalty cards.

- EZEATM anticipates maiden dividend payment in 2013.

ANALYSIS

The new relationship with ASEAN ATMs will replicate the EZEATM business model in both Indonesia and potentially in other parts of South East Asia, and is now based around a very aggressive growth posture that is backed with a business model that spins off significant cash flow.

The Company is no longer a Deployer of ATM's and is also a Switch and Distributor of ATM products that includes evolving relationships with manufacturers of ATM products and software vendors.

EZEATM continues to report strong sales growth across its contracted client base. This is led by record sales of 60 ATM's in the month of October, with monthly sales continually exceeding the budget target of 35 ATM's per month, and indicates the continuation of robust growth into 2013.

Valuation

Direct Cash Payments (TSX: DCI) recently entered the Australian ATM market with the acquisition of CustomersLimited for a total of $269M and secured approximately 5,400 ATM's at an average cost of approximately $50,000 per unit.

Direct Cash is a Canadian based operator that views Australia as a significant growth market with only 123 ATM's per 100,000 of population, whereas Canada already has 180 units and South Korea is saturated with 208 ATM's per 100,000 of population.

Applying the valuation metric that Direct Cash paid per ATM to the 2000 ATM's currently held by EZEATM would produce a valuation for EZATM of $90.0M, or $1.38 per share.

This is relative to current EZEATM share price of $0.45.

We see significant growth potential for EZEATM, as well as potential suitors eyeing the platform developed by EZEATAM and possible corporate appeal.

The current market valuation of $0.45 per share severely discounts the true value of the business, and makes no allowance for the growth potential in the Indonesian market, or additional revenue streams flowing from ATM advertising, maintenance contracts, pre-paid phone services, loyalty cards, pre-paid debit cards, acquisition of other ATM networks, or additional international opportunities.

This provides an opportunity for medium to long term investors to take advantage of this mis-pricing of EZEATM.

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