Shareholders in money transfer technology company eServGlobal Limited (ASX: ESV) don't catch many breaks and that's why today's surge in the share price is particularly noteworthy.
The stock jumped 14.3% to a one-month high of 40 cents on strong volumes after management revealed that MasterCard will use HomeSend to process international funds transfers from its new service called MasterCard Send.
eServGlobal owns a 35% stake in HomeSend and the news will bolster sagging confidence about the prospects of HomeSend, although it does nothing for eServGlobal's core Mobile Money business.
Concerns about Mobile Money are the main driver for the stock's recent weakness, in my opinion, as eServGlobal has shed more than half of its market value in the past year.
Mobile Money allows mobile phone users in developing countries to access bank services like bill payment and money transfer. The majority of these users are not served by banks.
But Mobile Money has not grown earnings to management's or my expectation and I think this business alone is only worth 20 cents a share on a discounted cash flow basis.
This implies that eServGlobal's HomeSend investment is worth less than $50 million on an enterprise value basis.
By extension, the implied value for the entire HomSend platform is about $140 million and that feels way too low even though there are worries that HomeSend won't live up to the hype.
HomeSend is a joint venture between eServGlobal, MasterCard and European telco BICS, which gives global remittance companies a cheap way to transfer funds across borders.
Some fear that MasterCard, which owns just over 51% of HomeSend, wouldn't put in best efforts to promote the platform but MasterCard's decision to use HomeSend in conjunction with MasterCard Send will put some of these doubts to rest.
MasterCard Send was launched this week in the US and it allows cardholders to send personal payments through a single connection. HomeSend only kicks in when funds are sent overseas but most of the initial transactions are likely to be within the US.
This means more patience is required before we see any real impact on eServGlobal's bottom line – and patience is a scare resource when it comes to eServGlobal.
The more important question for eServGlobal is how much is the stock worth if HomeSend comes anywhere close to its potential. My answer is pick any number north of $2.
The bigger question is when we will see a significant ramp up in transaction volumes for HomeSend.
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