Raising Price Target as Robust E-commerce Trends Should Drive Continued Recovery
Robust E-commerce trends in holiday season should help drive continued sequential improvement. Even with some non-essential retailers or restaurants seeing reduced customer traffic in the wake of the second wave of the COVID-19 pandemic and resulting partial lockdowns, the robust trends seen in E-commerce sales during the key holiday season bode well for OLB Group to see continued sequential improvement in transactions processed for its core payment processing solutions business, which should drive stronger transaction and processing fees during 4Q:20 and 1Q:21.
In the early months of the pandemic, widespread temporary business closures among the company’s merchant customers and clients resulted in a sharp drop-off in overall transactions processed. However, as the overall economy has improved as such businesses have reopened, recent months have shown a sequential improvement in transactions processed. On a monthly sequential basis in 3Q, July, August, and September displayed month over month increases in the number of transactions of 3%, 3%, and 7%, respectively. Given continued macroeconomic improvement overall, combined with strong E-commerce trends during the key holiday season, we expect to see further increases in such monthly trends in 4Q and 1Q.
Reiterate BUY rating, and raising 12-month price target from $7 to $9. The OLB Group is an emerging player in the rapidly growing financial technology (FinTech) sector. Given improving fundamental business momentum in recent months, combined with further expected improvement driven by rising E-commerce activity nationwide during the key holiday season, we continue to recommend investors accumulate shares of OLB. We believe shares of OLB should trade at an Enterprise Value/2021E Revenue multiple of 5x, which generates our new price target of $9.
Offering an expanded suite of products and services in the burgeoning FinTech industry. In addition to its core eVance payment processing solutions business, the company has significantly expanded its portfolio of FinTech products in recent quarters to include a cloud-based business management platform for commerce services called OmniSoft, a unique online capital raising platform for small and mid-sized businesses called CrowdPay, and a proprietary payment gateway solution called SecurePay.
Significant cross-selling opportunities. The OLB Group’s core eVance business has successfully established relationships and does business with thousands of merchant customers and clients in the U.S., including traditional bricks-and-mortar retailers, eCommerce retailers, restaurants, service companies, and others. We believe these established relationships represent a significant opportunity for the company to market and cross-sell its new FinTech products, which should not only help drive incremental revenue and profitability, but should also help further entrench the company’s relationships with these merchants.
Risks. Potential investment risks to attainment of our price target include delays and business disruption as a result of the ongoing COVID-19 pandemic, regulatory risk in the highly scrutinized financial services sector, possible dilution from future capital raises, competitive risk, and potential technological obsolescence in a rapidly evolving industry.