The following explains todays massive buying interest:
Investment aces back Oncard
By Alan Kohler
PORTFOLIO POINT: Oncard’s cash card numbers are exploding in China. It’s a hot business investors are yet to discover.
It’s always a good idea to invest in the slipstream of rich, successful investors where possible, so how would you like to come in behind Peter Scanlon, Dick Pratt and James Packer ”” in a company they think is good thing?
We don’t give a lot of share tips at Eureka Report and we’re certainly not into trading. But we are always looking for ways to help you grow your wealth over the long term, and there is no doubt that the absolute best way to do that is to invest in tomorrow’s success stories.
These investment opportunities are rare and hard to find, but I think Oncard International is one of them.
So do Peter Scanlon (previously the biggest individual shareholder in Patrick Corporation), Dick Pratt and James Packer; in fact a joint venture between Scanlon’s Brencorp and the Hong Kong-based investment bank First Capital Partners, called FCP China Investments, is the cornerstone investor in Oncard, with 40%. The Pratt family’s Thorney Investments and the Packers’ CPH are also big investors.
Oncard used to be called DCS Technologies, operating loyalty card schemes out of New Zealand. In 2002 the company turned to Peter Abotomey, a former banker with ANZ, to help them restructure and he promptly put the company into voluntary administration.
Creditors were paid 100 cents in the dollar, new investors were brought in, including members of the Murdoch family (David Calvert-Jones), and the company’s business was restructured and focused on China and the Asian region.
The business is now growing incredibly quickly, and the market has not yet discovered it. Peter Abotomey is now starting to make presentations to institutional investors and it is likely that the institutions will start re-rating the shares soon.
The key to business at this stage, as Peter Abotomey explains in today’s interview, is the “float” Oncard controls as a result of the “cash smart card” it is selling in China. The money deposited on the cards is temporarily in the hands of Oncard and the company gets to keep the interest on it; this is now at $100 million on deposit and rising fast.
On average, 60% of the money deposited on the cards stays with Oncard for a year. In addition Oncard gets to keep any cash that is not spent within two years, which equals about 10% of the money.
The other revenue from the cards is a merchant fee, averaging 2% of every transaction, paid by the retailer at which it is used.
The first card was issued in China on November 1, 2005. By the end of 2005, one million cards had been issued; by November 2006, it was three million cards, by December 2006 it was four million cards; now it is five million.
As a result, Oncard is making $2 million revenue per day. It has no debt and the growth is phenomenal.
The biggest customer is the Chinese Government, followed by the banks and retailers. The cards are being largely bought by employers to give to staff as a benefit, because under Chinese tax law, up to 14% of salary can be made up of benefits ”” tax free.
Peter Abotomey says that the biggest supermarket in Shanghai already has 8% of its turnover accounted by Oncard’s cash cards.
In addition to this cash card, Oncard has three other operations: loyalty cards in Australia, New Zealand, Hong Kong, China, Singapore, Malaysia and Taiwan; a dining discount card in Hong Kong and Southern China, and a card-based hotel marketing scheme. Peter Abotomey says he is also looking at a petrol saver card for New Zealand.
It sounds a bit like a blizzard of activity, perhaps more than this small, growing company can handle. But Abotomey says the common theme is cards ”” anything to do with cards.
And the fact that Peter Scanlon, Dick Pratt and James Packer are looking over his shoulder gives me some confidence that he will handle the company’s obvious success.
I plan to buy Oncard shares for my family’s super fund, but not ahead of you. In line with Eureka Report’s policy of always putting subscribers first, I’ll be waiting at least 24 hours. The shares last sold at 21.5 ¢.
Alan Kohler: Peter can you give us an overview of your business?
Peter Abotomey: Oncard is, as we say: if it’s on a card it’s Oncard. Oncard does loyalty, rewards and payments.
And when did you get involved with the company?
I became involved with the company four years ago when it was called DCS Technologies and it had some baggage, which we cleaned up. In the past 18 months we’ve been concentrating more and more on doing card-based systems and principally the one which is our growth market at the moment is in China. We issued our first card in China 15 months ago. We had one million cards a year ago and we have five million cards today.
What are the cards and how does the business work?
They’re prepaid charge cards and Chinese companies buy off us. We do a business to business, we’re not business to consumer. The Chinese company buys the cards off us to give their employees as a benefit. We provide a tax invoice which the tax office will accept and then the company will give those cards to their employees and the employees all do benefit. They’ll go to the supermarket. They’ll go shopping, a restaurant, the barber shop, the gym.
So the cards and the money on them are issued as a part of salary?
And it’s tax-free?
In China, 14% of your payroll total can be used for employee benefits.
Does it only go to employees?
Our biggest customers are the Chinese Government, followed by the Chinese banks and then Carrefour, which is the large supermarket chain, the French one in China, the biggest foreign one there, and what they do is they give the cards to their employees and I think leading up into Chinese New Year, which is just on at the moment, I think they also gift the cards to some of their customers.
How do you make money out of it?
When we sell the cards we keep the money on the card invested so we get the float on the money, and when the card is used we get a merchant service fee … and when the card expires after a period of time, if there’s any services still on the card, they’re expired and we keep those as well.
How big is the float?
It’s very close to $A100 million.
So you’re earning interest on $100 million?
How fast is that growing?
For the previous six weeks we were taking $A2 million per day.
How much money are you making?
The company has never made a profit to date. We’ll be announcing our half-year results at the end of February and because we’ve been investing so heavily in a lot of our businesses, it will be a negative result. But we are well on track to have our first profit for the full year on June 30.
What other businesses do you have?
We also have a company called Market Smart International, which is based in Auckland, New Zealand. It processes loyalty programs for companies in New Zealand, Australia and Hong Kong. It’s unknown for people who are outside the loyalty business because our name’s not seen. We do Fly Buys processing for some companies in New Zealand. We do processing here for Dymock’s through a third party and also for the Qantas-Telstra program.
But you’ve got some other card operations, haven’t you, apart from the Cash card in China?
We do. We also operate … we operate in seven countries. We’re in Australia, New Zealand, Hong Kong, Singapore, Malaysia, Taiwan and China. It’s the prepaid charge cards in China. It’s the Market Smart loyalty programs in Australia and New Zealand; and in Hong Kong, Singapore, Malaysia, we market loyalty dining programs. Everything we do is on a card. It’s either loyalty, rewards or payments and what we do is we’re building a foundation for growth. With the cards in Hong Kong, Singapore, Malaysia, we sell a subscription and then the person can go to a number of restaurants and get a discount at the restaurant.
Can you tell us a bit about how rapidly you’ve been growing as a company?
We issued our first card in China in about November 2005 so we had one card. By December 2005 we had one million cards. By November 2006 we had three million cards. And at the end of December 2006 we had four million cards and, as I say, we have over five million cards.
But how much more can you grow do you think?
We put a plan together two years ago … 18 months ago … to have 10 million cards in 10 countries in five years. Now we’re well in front of that plan. The growth in China, whether it will grow at that same speed I’m not so sure, but I think it might; we’re going to make our target of 10 million cards well within the timeframe.
And how much money will you be making on 10 million cards?
Good, good money. Good money. I’m reluctant to give a forecast in such a rapidly growing market other than to say that we intend to be profitable this year and to remain profitable.