PayPoint's contract with British Gas comes to an end

PayPoint said on Friday that it has been unable to agree "appropriate" renewal terms for its multi-year contract with British Gas.

The company, which will stop working with Centrica-owned British Gas and its customers after the end of December, said the contract loss will impact net revenue by around £1.4m in 2020 and £3.5m in 2021. However, it said plans are underway to mitigate this, in part, through the positive trend seen elsewhere in the bill payment business, including the "robust" performance of its omni-channel payments platform, MultiPay.

The company said it remains confident that there will still be a progression in pre-tax profit before exceptional items for the year ending 31 March 2020.

Chief executive officer Patrick Headon said: "After a long and mutually beneficial partnership, it is disappointing for PayPoint and British Gas customers that we have been unable to agree a renewal of our contract. Bill payments, top-up and e-money transactions remain important services for PayPoint as 99% of the UK population live within one mile of our network of 28,000 convenience retailers.

"Building on the accessibility of this network over the past few years, we have been focused on growing our retail services to better support our retailers and their customers, centred on PayPoint One, our EPoS solution now in over 13,000 sites, parcels, and card payments and ATMs. We continue to believe these initiatives are key to embedding PayPoint at the heart of convenience retail and driving future growth and profits."

At 0940 BST, the shares were down 4.8% at 973.38p.

Canaccord Genuity said: "We believe PayPoint's main competitor has won this contract, likely on a non-exclusive basis, which means that a commercial agreement between the two companies is still possible at a later stage. PayPoint has the largest energy prepayment network in the UK with 28.4k sites and the commercial impact from losing access to this could bring British Gas back to the negotiating table at a later stage.

"The shares have begun to re-rate recently and on circa 15x cal. 2019 price-to-earnings and 14x on a 2020 basis, respectively, they are factoring in a return to growth. While this contract loss adds some uncertainty to the magnitude of the growth acceleration, the still modest valuation and around 8% yield remain attractive in our view."