The shares of Touchcorp Ltd (ASX: TCH) have fallen lower by a staggering 34% in early trade following the release of a business update from the payments company.
For the year ending December 31 2016 Touchcorp expects revenue in the range of $36 million to $38 million. This will be a 9.5% to 14.3% drop on last year's $42 million.
Profit before tax is expected to be between $14 million and $16 million, up from last year's pro forma figure of $12 million.
So with profit after tax increasing why have its shares fallen?
I would suggest it is down to the fact that without its investment in Afterpay Holdings Ltd (ASX: AFY), Touchcorp would expect full year profit before tax to be between nothing and $2 million.
As a major shareholder, Touchcorp has recognised a $14 million gain arising from its share of the increase in Afterpay's net assets.
Whilst the company is entitled to recognise this gain, I would much rather see profit being generated from its own business operations.
This was the case in the first half of FY 2016. In its half-year results Touchcorp delivered operating profit of $6.6 million from revenue of $22 million. Since then though things appear to have gone downhill and fast.
For this reason I would avoid the company until its full year accounts are released. Until then an investment in fast-growing Afterpay or zipMoney Ltd (ASX: ZML) might be a slightly better option for investors in my opinion.
