Royce looks at three innovators in the payments processing industry

A Royce portfolio manager discusses three key holdings in the payment acceptance and processing industry. / Photo: Unsplash/Ali Mkumbwa

The Royce Smaller-Companies Growth Fund has spotlighted three small-cap growth stories in payments processing. These companies started out several years ago when the industry was built around equipment sales. However, they successfully shifted their business models to generate recurring revenue while remaining committed to innovation, noted Royce portfolio manager Chip Skinner.

Agilysys

With a market capitalization of $3.7 billion, Agilysys develops software for the hospitality sector. Its solutions help businesses to provide the “personalized, convenient” experience that customers expect from this sector by gathering and processing data from various sources, according to the company.

Initially, Agilysys focused on casino and gaming payment technologies before restructuring its business starting in 2017 and improving its R&D spending. It now specializes in point-of-sale (POS) payment processing, noted Chip Skinner. Other areas of focus include property management, workforce management, and inventory and procurement.

Over the last 12 months, Agilysys stock has gained more than 54%. All five analysts who cover the company have a “buy” recommendation. According to MarketWatch, their average target price is $141.25 per share, suggesting 6% upside versus the last closing price.

PAR Technology

PAR Technology, with a market capitalization of $2.75 billion, provides solutions for restaurants and convenience stores, such as POS systems and an online ordering platform. Its technologies enable all types of payments — credit cards, gift cards, contactless payments, and QR code payments, Skinner added. The company also does data analytics for businesses. PAR faces competition from a larger player, but that company’s parent is not reinvesting in the business, giving PAR an opportunity to beef up its market share, Skinner pointed out, without disclosing the competitor’s name.

Over the last year, PAR stock has grown almost 74%. According to MarketWatch, eight out of the 10 analysts covering the company have a “buy” recommendation, while two rate it a “hold.” Their average target price is $89.13 per share, implying 18% upside versus the December 13 closing price.

Cantaloupe

Cantaloupe, with a $675 million market capitalization, focuses on payment solutions for the self-service sector. It also offers cloud software and mobile ordering solutions, Skinner noted. Its clients include vending machine operators, restaurants, hotels, office coffee service and pantries, stadiums, banquet halls, amusement parks, and outdoor festivals. The company processes more than a billion transactions annually for more than 30,000 clients worldwide, Skinner added.

Cantaloupe has recently acquired several companies to expand its business and tap into new niches, as reported by the Royce portfolio manager. In September, it announced the acquisition of SB Software, a provider of vending management software solutions in the UK and Ireland, to expand its reach across Europe.

Over the last year, Cantaloupe stock has added 29%. According to MarketWatch, all six analysts who cover the company rate it a “buy.” Their average target price is $11.50 per share, 24% above the last closing price.