RE: RE: DirectCash's Canadian ATM business....a pr Naw....I'm neither long nor short. I'm just someone who's familiar with the industry and I see a lot of people making an investment in something they may not totally understand.....Call me a good Samaritan
1st off, DC's experience in Mexico is completely different than Canada. From the feedback I've received, it's not working out very well at all for them down there. Essentially, a very unconventional situation where they relied on making money on foreign exchange instead of transaction fees. It seems likely they might exit the Mexican market in the next year or so if they can’t turn it around.
In Canada, you may not be taking into account the nature of the saturated market. In the Canadian market, virtually every Hotel, Convenience Store, Bar or Recreation Centre where it makes sense to have an ATM, has an ATM. The days of 20% year over year growth are long over. That’s why, back in 2004 when DC went public as an Income Trust, it was the Poster Child for the industry. Limited Growth, but very stable revenue with almost guaranteed returns year-over-year. What should be expected is stability. Annual transaction and revenue growth in the range of 1-2%, in line with the growth of the overall population.
That’s what we should be seeing. Instead, there’s been a dramatic drop off in both Revenue and Transactions in the past year – 28%. Although there may be some one-time factors that may have led to the drop (such as The Cash Store’s ongoing disaster), the evidence points to the fact that DC is losing customers faster than they can gain them.
I explained in my previous post why that may be happening……a lot of very unhappy customers waiting to jump ship as soon as their contractual obligations expire. And make no mistake…..there are dozens of small companies out there, without DC’s overhead and financial obligations, that are offering ridiculous deals to steal market share.
Just one example: I know of a C-Store owner that called the DirectCash toll-free line and complained that they had an issue with the bill dispenser. The immediate response, without offering to send out a technician, was that he needed a new dispenser at a cost of $4000 or he could enter into a costly service plan. I might add, the retail cost for a BRAND NEW ATM was also $4000. The story ended when he contracted another company to fix his dispenser for a grand total of $100……..when his contract expires, guess what he’s planning to do?
Where I see DC’s major risk is that they may bring their Canadian Management Style to Australia. A bureaucratic regime that provides, in my opinion, marginal service at high cost, charges high fees, and constantly adds new fees. Over the course of a few years, this approach could see many of their newly acquired customers leave the company for cheaper, more responsive, alternatives. And make no mistake…..there’s plenty of hungry competition in Australia chomping at the bit.
The problem is, for investors, there’s not enough data to available to know what is normal. Although Australian transactions are already decreasing, is this just seasonal, or is DC already experiencing defections?
Anyhow….enough for now. I enjoy this topic, and if you – or anyone – wants an unbiased opinion, or wants to better understand any specific areas of the business, just ask.