Thread by @stocks102

THREAD: Long PCI Pal #PCIP (market cap: £65m; share price: 110p)

I’ve just bought PCI Pal (PCIP). It seems to tick most of the boxes needed for a 100 bagger, as described by @chriswmayer in his book ‘100-Baggers’.

Let’s look at each box.

Firstly, PCIP has a sustainable competitive advantage. It’s the only cloud-based operator of its kind. It sells software to contact centres – to ensure contact centres don’t lose a customer’s credit card details.

(Today, customers phone, webchat or facebook a contact centre - that’s why it’s called a contact centre and not a call centre anymore.) An example of a PCIP customer is the contact centre of furniture retailer Made.com.

Because PCIP is the only 100% cloud-based..

..company of its kind, its much bigger reselling partners – such as Salesforce - are happy to recommend PCIP to Salesforce’s clients, but are not happy to recommend PCIP’s competitors.

This is because the reselling partners only deal in cloud-based products themselves.

Sure, competitors will go cloud-based in time. But this is a land grab that is happening right now. Most of PCIP’s potential customers (the contact centres) don’t have any such software installed at the moment. So PCIP has a huge advantage as it can grab the most amount...

...of land fast, because its many reselling partners like Salesforce - that PCIP’s being 100% cloud-based has attracted - are selling PCIP’s products fast, and globally.

Once installed, it’s disruptive to switch - it takes 4 months to install - so customers are very sticky.

Churn is a single digit % per year. Besides, why would you switch if it’s working? The average contract size per contact centre is £20k per year. So that’s £1.5k or so per month in insurance, really: insurance that a company’s name won’t end up on the front page of the FT...

...because someone has stolen the credit card details of its customers.

And if PCIP is doing a good job for its underlying customers like Made.com, then why would reselling partners like Salesforce drop PCIP for a rival (even when rivals eventually become

fully cloud-based too)? Especially since PCIP is the only software provider with no intention of expanding its product portfolio into areas to rival Salesforces’s products (which PCIP’s rivals seem, bizarrely, to be planning to do).

Secondly, PCIP is growing sales at 50% p.a.

This is well over the 10% per annum that 100-Bagger author Mayer stipulates. And there is a clear, and long, growth runway ahead. Google says there are 60,000 contact centres in the US alone, yet PCIP has fewer than 500 clients globally today.

Thirdly, PCIP’s ROCE is well...

...over the 20% Mayer requires. Or at least it will be in 2023 once PCIP attains serious profitability. The operational gearing as PCIP swings into profit will be stark because gross margins are 85%. (Incidentally, Mayer insists on gross margins over 50% - as objective proof..

..that a ‘sustainable competitive advantage’ exists. After all, if you can make a product for 50p and hawk it on for £1, then you must have some magic. Clearly PCIP can sell their 15p product for £1.)

Fourthly, the valuation today is low. (Mayer points out you need not..

...just strong eps growth but also a low starting P/E – to ensure future multiple expansion - if you are to catch a 100 bagger.) Assuming sales continue to grow at 50% for the next 3 years, and that costs continue to grow by £500k p.a., then the P/E to June 2024 may be under 10x

Fifthly, Mayer looks for market caps under £700m. PCIP’s market cap is £65m.

Sixthly, it’s preferable if an ‘owner-operator’ runs the business, i.e. that the CEO has a large personal stake. PCIP does fall down here. The impressive CEO, James Barham, holds just 0.2% of...

...the company, according to Sharepad. However, the reason Mayer wants to see an ‘owner-operator’ on board is that they will then act like an owner, focusing on returns on capital and on cash generation. And, for whatever reason, Barham is doing this: he’s contrived a...

...where ROCE will soon be very high and cash generation will be too (customers often pay yearly in advance).

Of course, the most important thing to remember if you want to catch a 100 bagger, is to hold on. Mayer points out that drawdowns of 50% - and periods of up to a year..

...when the stock remains down by 50% – are common and make you want to sell out of fear something has gone wrong. And then if a stock soars 200% say, you’ll want to sell out because of a different kind of fear: that it’ll soon go back down. Mayer counsels selling only if the..

..investment case changes. But never to employ a stop loss.

Simple, right? I don’t think I’ve ever held a share for longer than two years. Perhaps it’s worth turning over a new leaf here.

To find out more, watch the CEO present on investormeetcompany.com

And visit PCIP’s website to see videos like this one. It’s the CTO of furniture retailer Made.com talking about the simple but mission critical solution that PCIP offers: pcipal.com/knowledge-cent…

/ends