eServGlobal jumps to fresh 2½-year high

Mobile payment company eServGlobal (ESV) finished at a fresh 2½-year high today following its full year result and news that it has struck a partnership with MasterCard.

Mobile payment company eServGlobal (ESV) finished at a fresh 2½-year high today following its full-year result and news that it has struck a partnership with MasterCard.

The stock surged 10.6% to 78 cents after the company swung into the black in 2012-13, a year ahead of expectations, and said credit card giant MasterCard will pay £9 million to eServGlobal for a stake in HomeSend.

HomeSend is a joint venture between eServGlobal and telecom giant BICS that allows users to transfer money internationally from one mobile phone to another. MasterCard will have a majority interest in HomeSend once the transaction is completed.

MasterCard’s payment will give a big boost to eServGlobal’s bottom line in the 2013-14 year, which ends on October 31. eServGlobal posted a net profit of $10.4 million in 2012-13 when consensus estimates was forecasting a loss of $1.4 million. The company delivered a loss of $15.6 million in 2011-12.

The much better than expected result is primarily due to the exchange rate. As highlighted in yesterday’s Uncapped article, analysts may be slow to account for the tailwind from the falling Australian dollar.

The falling Aussie added $8 million to eServGlobal’s profit line last year but detracted $3.4 million in 2011-12.

The company generates a significant proportion of its income in British pounds and the Australian dollar is trading at a four-year low of around 54 pence, and looks as though it will fall further.

More importantly, HomeSend could be a game changer for eServGlobal as I explained last Friday. At that time, MasterCard had not entered the picture, and I estimated that a modest adoption rate for HomeSend among mobile phone users will generate revenues in excess of the company’s traditional core business, which is providing domestic payment services to mobile users.

The deal with MasterCard gives me greater confidence that HomeSend will prove to be a commercial success, but eServGlobal has not provided details on revenue sharing. When it was just eServGlobal and BICS, the companies split the commission from each transaction equally.

eServGlobal couldn’t be contacted in time for the article as its management team is based in the UK and France.

The stock, which is part of the Uncapped 100, is up 117% since the start of the calendar year.

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