Ann: Investor Update, page-20

ATM fee cuts open opportunities for payment small-caps

• The Australian
• 12:00AM September 30, 2017
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• TIM BOREHAM
  
  

Stargroup (STL) 2.1c
ATMs hit the headlines this week when the big four banks all announced they were scrapping fees for customers of other banks.
At face value this magnanimous act should be a threat to the independent operators such as the only pure-play, ASX-listed ATM operator, Stargroup.
After all, why would punters still fork out an average $2.40 per withdrawal on a Stargroup ATM when they can do it for nix on a big four ATM down the road?
Sensing danger, investors whacked Stargroup shares by 25 per cent after CBA sparked the fee abolition chain reaction.
But Stargroup believes the fee abolition will soon spur the banks to outsource their ATMs. “Stargroup has been positioning itself to be at the table to have such discussions with the majors,” Stargroup chief Todd Zani says.
Zani reckons CBA alone spends at least $160 million a year on its ATM fleet. On Deutsche Bank’s sums, the big four will forgo $117m a year in foreign fee revenue, ranging from $38m for CBA to $22m for NAB. “There are possibly lesser incentives for the owners of ATMs to continue to invest in and maintain their network,” Deutsche says.
Zani claims Stargroup could run the ATMs cheaper because most of the banks’ ATM hardware is outdated. He says Stargroup’s fleet of 2400 ATMs (owned and operated for third parties) is similar to the networks of the smaller two of the four pillars, ANZ and NAB. “So we have proven we can operate an ATM network the equivalent size of two of the four majors,” he says.
As for Stargroup’s nasty share price tumble, Zani attributes the selling to retail investors who don’t understand the business model. In reality, he says, there’s little risk of the fee-free bank ATMs siphoning business from its own machines. Stargroup ATMs are located in venues such as pubs, clubs, servos and 7-Elevens, and pitched at convenience. Typically, a pub-goer will pay a high fee rather than trawl a hostile street late at night for a bank ATM.
Thanks to a $6.6m tax benefit, Stargroup reported a full-year profit of $1.9m on revenue of $8.3m. Management guides to current year earnings of $2m-$2.5m on revenue of $20m-$21m.
This month the company signed a joint venture with the blockchain company DigitalX (DCC) to provide two-way bitcoin ATMs.
There are now fewer than 20 bitcoin ATMs nationally and most of them only allow one-way purchases (adding the currency to a digital wallet, not selling it for “real” money).
Bitcoin ATM conversion fees are a chunky 4-8 per cent of the transaction. At the midpoint, that’s about $300 per transaction.
But while pocketing $300 is more compelling than reaping $2.40 on a normal ATM transaction, few bitcoin transactions take place. For the time being.