Paysign, Inc.

PAYS Details

Paysign, Inc. (NASDAQ: PAYS) is a payment solutions company that offers prepaid card programs and processing services to corporate, consumer, and government institutions. PAYS markets its prepaid debit card solutions under its PaySign brand and has also developed a card processing platform comprising proprietary systems and software applications catering to the clients' specific demands. Its platform provides transaction processing, cardholder enrolment, value loading, cardholder account management, reporting, and customer care services.

Key Hirings: On August 05, 2021, PAYS announced the appointment of Brad Cunningham as its Chief Technology Officer (CTO). Mr. Cunningham has over 17 years of experience in developing high-availability payment systems that incorporate complicated data analytics. Before joining PAYS, Mr. Cunningham was the senior vice president and managing director of IT Strategy & Services at Republic Bank & Trust Company. In addition, Alan Geiger and Richard Graub joined PAYS as Directors of Relationship Management and Product Management, respectively, at the same time.

Q2FY21 Results: PAYS witnessed YoY growth of 3.23% in total revenue to USD 6.65 million in Q2FY21 (ended June 30, 2021) compared to USD 6.44 million in Q2FY20. The Plasma Industry, which represented 89.42% of the total revenue in Q2FY21, increased by 30.07% YoY, whereas the Pharma Industry decreased by 63.75% YoY. Net loss for the company increased to USD 0.93 million in Q2FY21 vs. USD 0.22 million in Q2FY20. As of June 30, 2021, the company had a cash balance of USD 6.62 million and no outstanding debt.

Key Risks: PAYS depends on several third parties for its network connectivity and gateway services. Therefore, any failure on the contractual obligations by third parties could harm operational and financial performance. Furthermore, PAYS works in the highly competitive IT services business, where it competes directly with larger competitors who have more financial and operational resources. As a result, it must incur significant marketing and rewards programs expenses to increase sales and retain its customers. If the competition intensifies further, or if PAYS fails to manage its expenses, it could hurt its profitability.

Outlook: In FY21, PAYS expects to clock revenue in the range of USD 29.0 – 32.0 million, thus realizing YoY growth of 20% – 32%, along with an adjusted EBITDA ranging between USD 0.75 – 1.90 million. PAYS also forecasts YoY growth of 790 bps in gross margin to 46.5% in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PAYS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: PAYS' share price surged 25.85% during the day and is currently trading in the lower band of its 52-week range of USD 2.34 to USD 6.22. We have valued the stock using the EV/Sales multiple-based relative valuation methodology and arrived at a target price of USD 2.60. Considering the tremendous intraday movement, growth in topline, current valuation, and associated risks, we recommend a "Sell" rating on the stock at the current price of USD 3.70, up 25.85% as of September 10, 2021, 10:10 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Espey Mfg. & Electronics Corp.

ESP Details

Espey Mfg. & Electronics Corp. (NYSE: ESP) is a company that designs, tests, and manufactures electronics for military and industrial applications. Power supplies, filters, power transformers, magnetic components, power distribution equipment, antennas, and high-power radar systems are among the products offered by the firm. It generates substantial revenue from contracts with industrial manufacturers and defense firms, the Department of Defense, other US government agencies, and foreign governments. As of March 31, 2021, the overall backlog was about USD 67.3 million, of which USD 65.20 million was approved by the congress and/or funded by the customer, while the remaining USD 2.1 million is an unfunded backlog representing two multi-year orders from a single client.

Suspension of Quarterly Dividends and Interruption in Product Deliveries: ESP stopped paying quarterly cash dividends on March 09, 2021. Its board of directors described it as a deliberate decision to preserve a solid liquidity position despite the worldwide problems posed by the COVID-19 pandemic. Furthermore, owing to circumstances such as the decline of the rail sector, the virtual collapse of the airline market, and the global scarcity of electronic components, the company anticipates product deliveries to be delayed.

Q3FY21 Results: The company reported a 32.08% decline in net sales to USD 4.21 million in Q3FY21 (ending March 31, 2021) compared to USD 6.19 million in Q3FY20, primarily due to a decline in power supply and magnetic sales. As a result, ESP reported an increase in net losses to USD 1.07 million in Q3FY21 vs. USD 0.10 million in Q3FY20. In addition, net operating cash inflow during 9MFY21 was USD 2.19 million compared to USD 4.93 million for 9MFY20.

Key Risks: In Q3FY21, the company's five key customers accounted for 66.1% of total sales, while four key customers accounted for 57.3% during 9MFY21. Such excessive dependence on a few customers for sales can prove to be detrimental to the company's financial strength in the future.

Outlook: ESP stated in its Q3FY21 quarterly report that it anticipates total sales and net income per share to be lower in FY21 than the prior year. It also stated that a minimum of USD 12.8 million in backlog orders (excluding shipments) from March 31, 2021, will be filled during Q4FY21. These estimates reflect the impact of the COVID-19 pandemic on the sales backlog, inventory write-offs (experienced due to a terminated contract supporting the aviation sector), rising costs on different projects, etc.

ESP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ESP's share price declined only 3.09% in the past month and is currently trading in the lower band of the 52-week range of USD 13.75 to USD 23.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 50.61. Considering only a slight correction in the stock price in the past month, diminishing outlook, decline in top and bottom-line, technical indicators, and associated risks, we recommend a "Sell" rating on the stock at the current price of USD 14.45, up 5.08% as of September 10, 2021, at 12:10 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.