Yesterday, 3Pea International, Inc (TPNL)  management bought back 2.4 million shares, approximately 6% of the outstanding shares of the company, providing confidence to GeoInvesting that strong 4th quarter revenues could be in the cards.  TPNL designs and develops payment solutions including proprietary payment terminals, secure key loading systems, prepaid card systems, and various payment services.

Commentary from the company’s release states:

“Based upon current market valuations, available strategic options and expected future cash flows, we believe the acquisition of approximately 6% of our company’s outstanding common shares will be highly accretive for our shareholders. Additionally, we were able to significantly reduce our total outstanding liabilities during January 2015,” said Arthur De Joya, Chief Financial Officer of 3PEA International. “It also expresses our confidence in the long-term health and financial performance of our business as we continue to aggressively pursue various markets. We are well-positioned and highly confident in our growth prospects for 2015 and beyond.”

Management’s Forecast of Record Revenue

GeoInvesting began tracking TPNL in October 2014 due to management forecasting record revenue and net income for 2014. We now believe that TPNL will post strong Q4 2014 results, and will continue to follow the company.  Reasons for tracking:

  • After 3 years of unimpressive growth (including first half of FY 2014) management is  forecasting record revenue and net income for 2014. 3PEA expects 2014 revenue of $9.25 million to $9.75 million as compared with revenue of $6.3 million in 2013, an annual increase of 47% to 55%. The Company also expects 2014 net income to surpass record levels.
  • It appears the company has invested capital to scale its business.
  • Improved its web portal to enhance the customer experience
  • Focusing on selling higher margin products.
  • Company is in the process of expanding its customer base.

According to the company description on its most recent 10Q filing,

“We have developed prepaid card programs for healthcare reimbursement payments, pharmaceutical co-pay assistance, corporate and incentive rewards and expense reimbursement cards. We plan to expand our product offering to include payroll cards, general purpose re-loadable cards, and travel cards. Our cards are offered to end users through our relationships with bank issuers. “

GeoInvesting is generally attracted to companies that offer outsourcing to their customer bases, especially in markets where cost reduction is a strong theme, such as the health insurance industry. According to the company, network branded prepaid cards allow consumers to have better control over their budgets while these cards work like traditional debit/credit cards and offer many of the same fraud and loss protections. They access funds pre-paid for the cardholder that have been loaded by either the cardholder, another consumer (as a gift), the government for benefits, employers/corporations for payroll, or by a corporation for rewards/incentives, or health benefits. As a non-credit payment tool, they help the users control their budgets.

Network branded prepaid cards are relatively new, but incredibly useful financial tools for millions of Americans. Network branded prepaid cards provide consumers, businesses and governments with the efficiency, security and flexibility of digital payments through a non-credit payment option. Most network branded prepaid cards benefit from broad acceptance, as they can be used anywhere the card brand (Amex, Discover, MasterCard, Visa) credit/debit card is accepted and they provide the end user security against fraud and theft.

The company claims it has enough capital to sustain operations for the next 12 months. Although shares are trading at a reasonable TTM P/E of 25, based on a TTM EV to adjusted EBITDA of 14.0 and an EV to sales of 0.6. Shares could offer some upside from current levels.  We will request an interview with management.

Caveats:

  • Need to verify managements claim to raise money.
  • Volatile chart over last year
  • Current ratio is less than one.
  • Will strong results be sustainable?

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