Hey everyone!
I know micro caps aren’t talked about much here but I recently found an interesting one.
[I originally posted this on my site but thought I’d share it here as well.]
Anyway…
Name: 3PEA International
Ticker: TPNL
Market Cap: $141 million
The business: The company makes money working with plasma donation centers by selling pre-paid debit cards.
So people donate plasma and actually get paid for it. Usually about $40. These plasma donation centers need to compensate donors so they give them these pre-paid debit cards. This is where 3PEA comes in. It works with the donation centers to set up the card programs and infrastructure to service the donors.
It’s pretty niche but that’s key to its competitive advantage. Competition is inept.
Competition: The biggest competitor is Wirecard who, five years ago, had 100% market share. Now, 3PEA has over 35%. Wirecard has dropped the ball and is losing ground quickly.
Financials: The company was recently uplisted to the NASDAQ so it does not have all the quarterly financials of past years.
However, here are the last three quarterly revenue numbers:
44%, 60%, 62%, and 44% for Q4 guidance
Gross margins: hovering around 50%
Operating cash flow margins: about 20% (called adjusted ebitda but it is basically OCF)
Management: The co-founders own 40% of shares outstanding. Have been running the business for about 17 years. A lot of experience.
From here on: A few catalysts loom on the horizon. One, the company has really boosted its investor relations presence. This is surprisingly important for micro cap companies.
Two, it is expanding into more lines of business. Pharma-copay and clinical research are areas of focus. Instead of only plasma, these cards could be used to reimburse patients in clinical research experiments. On top of this, these cards could also be used for general purpose reloading. This means people could re-load money onto them rather than from only the donation centers. This would really open up the market.
Interestingly, pre-paid debit cards are a huge and growing market.
Some stats:https://aitegroup.com/report/us-prepaid-card-market-overview…
Growing about 15% and expected to get to almost $580 billion by 2020.
Valuation:
TTM revenue are $21 million.
Enterprise value is about $141 million but it also has $20 million in float from the un-used card balances that it can make interest off of.
I think sales can grow 40% for next year so that could get us to about $30 million in forward revenues. So a 4.7x forward EV/sales multiple. For a company that posted 60% growth with positive net income and pretty solid operating cash flow margins.
That’s the thing with micro caps. They trade for a discount because not many institutions can even buy them. Therein lies the structural advantage of a micro cap investor. A tad outside my comfort zone but an interesting company nonetheless.
Conclusion:
This is still a solid deal even though the stock has appreciated heavily over the last year. It is down a bit since this pullback so it could be a time to nibble.
I am really liking this one. I haven’t invested in any micro caps in a long time so I’m approaching it cautiously.
Anyway, just wanted to let you all know. Feel free to shoot holes. I’d like that.
References:
Annual Report: https://s3.amazonaws.com/filings.irdirect.net/data/1496443/0…
Investor Presentation: https://3pea.com/wp-content/uploads/2018/12/3PEA-Investor-Pr…
Latest reported quarter: https://seekingalpha.com/pr/17331810-correcting-replacing-3p…
Best to all and Happy Holidays,
Fish