A whole new Universe

A focus on its strengths in payment and loyalty scheme systems under a new management team and a move away from distracting activities such as bureaux de change are two key reasons to invest in AIM-quoted Universe.

The third reason is that, after disappointing investors for some time, the business is slated to deliver meaningful sales and profits growth over the next three years.

HTEC, Universe’s core payment and loyalty scheme systems business – it supplies payment solutions and managed services to petrol retailers – has a very strong market position in the UK. Its customer base already includes the likes of BP, Chevron, Morrisons, Asda and Total, and John Scholes and Paul Cooper, who took on the roles of chairman and chief executive respectively earlier this year, plan to build on these foundations and take advantage of HTEC’s expertise and contacts internationally. HTEC handles more than £6 billion of transactions each year and one-third of UK petrol stations use HTEC systems. Visibility levels are strong, with recurring revenues accounting for two-fifths of its turnover.

Over recent months there have been stories of frauds involving petrol stations and the type of systems Universe supplies can help combat this. The systems can make real-time status checks for petrol purchasers and alert the company if equipment isn’t working. The company’s Virtual Back Office (VBO) system makes it easier to manage a chain of sites and monitor stock levels. Supermarkets group Morrisons uses VBO and only needs four people to run the administration of its petrol forecourt business.

Aside from the retail operation (which includes the HydraPOS system and outdoor payment terminals, which are used on unmanned petrol forecourts) Universe has two other divisions: international oils and loyalty; and manufacturing services.

International oils and loyalty encompasses online payment and loyalty schemes for multinational customers. The loyalty systems connect the pumps with a central system that issues loyalty points for purchases. This means that any terminal can run a loyalty scheme without having to be adapted.

Manufacturing services makes terminals and other hardware, although its margins are much lower than the rest of the group. It is unlikely to be a significant part of the business for long because the growth will be concentrated on the rest of the group.

In terms of its target audience, it is worth noting that Universe is widening its customer base, having recently installed an electronic point of sale (EPoS) system for Clinton Cards. Although the big oil companies and petrol retailers will continue to dominate, no single client accounts for more than 12 per cent of turnover.

‘We can still expand in the UK,’ insists Cooper, who adds that a lot of businesses are looking at loyalty schemes at the moment. International expansion will help Universe grow faster – the company has developed a software interface for overseas clients that will be rolled out over five years.

As for acquisitions, Cooper says he is focusing on similar companies in different countries and regions, or businesses that are involved in niche markets where Universe’s skills can be used. Any market requiring unattended payments could prove a potential new area for the company.

Universe lost £3.5 million last year, if all write-offs are included, although the continuing businesses made a small profit. House broker Charles Stanley is forecasting steady growth over the next three years, with forecast profits moving from £1.3 million this year to £1.9 million in 2009. The shares are trading on a lowly six times prospective earnings for 2009.

In March, the group raised £3 million at 7p a share, a funding that should leave Universe with net cash at the end of this year; and with the business very cash generative, the balance sheet should remain strong. Investors should take the opportunity to get in at a similar price to the institutions that took up the placing shares. Buy.