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UBS upgrade sends fintech star Touchcorp Ltd soaring

The shares of growing fintech company Touchcorp Ltd (ASX: TCH) received a big boost this morning after a research note released by investment banking giant UBS revealed it had upgraded its shares to a buy rating with a $2.20 price target.

As a result the market has been fighting to get hold of its shares today. Although it has dropped back a touch now, in late morning trade its share price was higher by over 7% to $2.04 on a day when the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is dropping lower.

For those that are not familiar with this exciting company, Touchcorp is a provider of secure transaction processing technology and counts companies such as 7-Eleven, Optus, and HICAPS amongst its growing client list.

Today’s upgrade comes a day after the company announced a new software development and transaction services agreement with Change Up Holdings worth an initial $11.25 million. Touchcorp will receive $6.25 million in cash and 10 million shares in Change Up at 50 cents per share.

Management expects the initial deployment of the Change Up application in Sweden and Norway to result in long-term transactional revenue streams for the company.

This latest agreement is similar to the agreement the company has with fellow Australian fintech star Afterpay Holdings Ltd (ASX: AFY). I’m a big fan of Afterpay and believe it has an incredibly bright future, which certainly bodes well for Touchcorp and its shareholders.

Touchcorp has a 30% holding in the recently listed Afterpay. Considering its shares have risen 68% since its IPO in May, the company certainly has made a tidy profit. Though it is worth noting that the 50 million Afterpay shares held by Touchcorp are subject to an escrow restriction period of 24 months ending 4 May 2018.

With the shares trading at 22x trailing earnings and management expecting profit to be significantly higher in 2016, I agree with UBS and believe an investment at the current price would be a rewarding one.

Whilst it is a competitive industry, I feel confident that thanks to its growing client list Touchcorp is in a strong position to grow over the next few years.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of TOUCHCORP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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