Questor share tip: Sell Optimal Payments after finance chief exit

Aim-listed online payment processor has suffered from a controversial director share deal and the exit of the finance chief, says Questor

An amusing Android poker game provided this reader with hours of entertainment
An amusing Android poker game provided this reader with hours of entertainment Credit: Photo: Alamy

Optimal Payments
325½p+12p
Questor says SELL

Optimal Payments [LON:OPAY] shares have been hammered this year. The company’s shares have tumbled almost 40pc from highs of 536p in mid-September and are now down 9pc for the year after its chief executive was caught up in a controversial share sale.

The online payment company announced the exit of the finance chief Keith Butcher last week and yesterday moved to calm the markets by insisting trading was still fine.

The problems all stem from share dealings carried out by the company’s chief executive earlier this year. On April 1 the company made a regulatory announcement that Joel Leonoff had “pledged” 1.5m Optimal Payments shares, or 38pc of his entire holding, in return for £4m in cash from a US company called Equity First Holdings (EFH). The cash received for the shares was about a 30pc discount to their £5.5m market value.

On the face of it this transaction did not appear out of place, as management in Aim-listed companies often have a lot of their wealth tied up in the shares and using them to fund a house purchase or the like seems sensible.

However, the company was forced to clarify the deal last month after EFH found itself back in the spotlight over other share deals at insurance outsourcer Quindell. It emerged that Mr Leonoff’s EFH “loan” structure involved him disposing of his shares at a discount, but with an option to repurchase. Mr Leonoff’s full intention may be to buy back the shares, but crucially he doesn’t have to if they fall in value. There is quite a big difference between simply using shares to obtain a loan - and selling more than a third of one’s stake in a company, as now appears to have been the case.

Meanwhile, the company said yesterday that trading was strong and it expected results for the year ended December to be “at least” in line with market expectations for pre-tax profits of £45m, on revenue of £232m, giving earnings per share of 24.4p.

Optimal Payments is operating in a fast-growing online gambling market as its technology helps customers store cash and make payments. It has two main sources of revenue: NETELLER, an “e-wallet” business into which online gamblers can deposit money, and NETBANX, a system that processes transactions for online retailers. But, despite these encouraging prospects, Questor is nothing if not cautious and doesn’t like surprises such as those involving Mr Leonoff’s sharedealing. We are exiting our previous buy position and would rather hold cash going into next year. Sell.