Neovia Bolsters Prepaid on Pickup from Struggling IDT Corp.

Updated on Dec. 2; adds brokerage comment

Neovia Financial has agreed to acquire the European prepaid financial services division of IDT Corporation, a diversified holding company that has lost 94 percent of its share value on the New York Stock Exchange in a very tough year to date.

The purchase agreement, announced today, sees Neovia acquire the entire issued share capital of IDT Financial Services Holdings Ltd. for approximately $15.05 million, cash.

IDT Financial, which was founded in 2006, provides prepaid MasterCard products in the United Kingdom under the Prime Card brand.

The transaction is subject to approval by both the Financial Services Commission Gibraltar, under which IDT Financial has a banking license, and MasterCard.

In an interview with IGamingNews, Ronald D. Martin, the chief executive of Neovia, said the acquisition was in line with his company's stated strategy.

"We've been indicating that we'll use our relatively strong balance sheet to invest in future capabilities and grow opportunities," he said. "Certainly the prepaid space, everyone agrees, is growing rapidly, and we have every reason to believe it will continue to."

Indeed, on its third-quarter results, Neovia teased "a number of interesting investment opportunities" that have emerged as a result of the wider economic downturn.

Ivor Jones, an analyst with Evolution Securities, suggested on those results that Neovia's cash -- at the time, $89.4 million -- "was not delivering value for shareholders" while Numis Securities projected an acquisition somewhere between $1 million and $5 million.

In the 2008 fiscal year ended July 31, IDT Financial generated income of £1.4 million on a loss before tax of £1.85 million. It had net assets of £7.66 million.

Neovia said the acquisition would be earnings-accretive in the first full year of operation after completion, assuming that completion occurs early in 2009.

"We assume that the acquisition will be broadly earnings neutral in FY09E and we have increased FY10E EPS by 8% (15.03c vs 13.93c) to reflect the deal synergies and higher customer yields," James Hollins, an analyst with Neovia's house broker Daniel Stewart & Co., said in a note to clients.

A phone call to IDT was not returned by press time.

In IDT's 2008 annual results, it said it was in the process of evaluating divestitures of non-core assets, "as well as reducing or eliminating the operations of certain of our non-profitable divisions and reducing corporate overhead."

According to an October release, the company was working with New York Stock Exchange regulators to regain compliance with the exchange's continuing listing standards.

Both its market cap and share price have remained below the $100 million and $1.00, respectively, for a period of more than 30 consecutive days.

Neovia, with a market capitalization of $68.35 million, was unchanged in London today and closed at 57 pence.