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Catuity shares soar on software deal
CEO cautions investors about 450% gain in stock
By Michael Baron, MarketWatch
Last Update: 2:05 PM ET June 21, 2005
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NEW YORK (MarketWatch) - Shares of Catuity Inc. soared Tuesday, rising an incredible 450% on extremely heavy volume, after the Detroit developer of retail software inked a software deal with CertifiChecks, a private provider of gift-certificate processing services.
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Catuity soars nearly 450% on deal with CertifiChecks
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The stock (CTTY: news, chart, profile) jumped $17.88, or 450%, to $22.10 in afternoon action. Volume of 5.8 million was roughly 290 times the issue's daily average of 20,700. At their peak for the session, the shares reached $22.58, more than double the previous high for the year of $9.10 on Nov. 18.
Financial terms weren't disclosed. The agreement is the first contract for Catuity's Advanced Loyalty System loyalty and gift card software. It calls for CertifiChecks to deploy Catuity's software as a turnkey hosted application to be sold to merchants and chain stores already using CertifiChecks paper-based products.
Deployment is expected early in the third quarter. CertifiChecks, which was founded in 1999, partners with more than 70,000 merchants across the U.S., including Army & Air Force Exchange Service and the Defense Commissary Agency.
John Racine, the CEO of Catuity, said the price action in the stock was "gratifying but shocking" and he was quick to downplay the increase, acknowledging the volume indicates a large amount of day-trading is going on and that there's likely to be a pullback before long.
"We caution investors that there is no single announcement we'll make to get us to profitability," he told MarketWatch. "This is going to be a gradual process."
He did add, however, that the contract is a revenue-sharing arrangement between the two companies, and that Catuity continues to work towards similar deals with roughly 400 prospective clients.
Racine, who was named CEO in September, said Catuity is still in the process of executing a turnaround plan. The company's fortunes changed, according to its Form 10-K filing for fiscal 2004 in March of that year, when Target (TGT: news, chart, profile) decided to discontinue use of smart cards and phase-out its participation in Visa's Smart Rewards program.
This, in turn, led to Visa ending the program, and prompted Catuity to switch its focus away from smart cards to point-of-sale software products.
Further evidencing the company's conservative tone during its restructuring, Racine noted that Catuity came to terms with CertifiChecks in April but waited to announce the deal until everything was in place for deployment.
"Nothing short of calamity will get in the way of us going live with this deal," he said. "This isn't about a quick jump in the stock price for us," adding later that Tuesday's jump was "totally unreasonable."
"I know that may deflate the shares a bit but there's just no justification for the level we're at now," Racine said.
Catuity is in the process of acquiring Loyalty Magic Property Ltd., an Australian firm, for $4.35 million, and the closing of this deal is part of the listing-compliance plan it filed with the Nasdaq in April after the exchange determined it was out of compliance with the rule requiring maintenance of shareholders' equity of at least $2.5 million. The company also hired Donohoe Advisory Associates LLC at that time to provide consulting service during this process.
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