Nuvei Corp (TSX: NVEI) is a provider of payment technology solutions to merchants and partners in North America, Europe, The Asia Pacific and Latin America. The solutions provided by the company are mobile payments, online payments, and In-store payments.

Key highlights

• Robust Total Volume Growth: The total volume is an important indicator of a company's performance and is defined as the entire dollar worth of transactions handled in a given period by merchants with whom they have a contractual arrangement. The group's overall volume climbed by 88% to USD 21.6 billion from USD 11.5 billion in the previous similar quarter, indicating robust growth. The eCommerce segment accounted for 83 percent of total volume. On YTD basis the volume grew 119% to USD 64.1 billion. Strong volume growth was seen in all of the respected regions, which is a major plus.\

Source: Company, Analysis by Kalkine Group 

• Consistently rising revenue: Even during a period of turbulence, the corporation has enjoyed revenue growth on a sequential basis. Compared to Q3 2020, the company's sales climbed by USD 90.2 million, or 96% in Q3 2021. The increase in revenue is mostly due to organic growth and, to a lesser extent, acquisitions, as well as an increase in volume.

Source: Company, Analysis by Kalkine Group 

• Generating strong Adjusted EBITDA and Margin: On the back of robust total volume and increased revenue, the company is earning better Adjusted EBITDA on a sequential basis, which is a significant positive. It grew from USD 41.0 million in Q3 2020 to USD 80.9 million in Q3 2021, improved by 97%. While the margins remained stable at 44% in last five reported quarters. Maintaining margins at a healthy rate is appreciable.

Source: Source: Company, Analysis by Kalkine Group 

• Focusing on High Growth Verticals: The company's proprietary technological platform, which is designed specifically for high-growth mobile commerce and eCommerce areas, sets it apart. Furthermore, it is leveraging its extensive industry experience to assist merchants of all sizes across numerous geographic regions, working in some of the most complicated sectors. Nuvei's total addressable market, in terms of total volume, is estimated to be around USD 20 trillion across a variety of high-growth verticals, including online retail, online marketplaces, digital goods & services, regulated online gaming, social gaming, financial services, and travel, according to the company's management.
  

• Surge in cash flows: The company reported a higher cash flow of USD 201.8 million in 9MFY21, as compared to USD 48.9 million in pcp, supported by a net income of USD 94.7 million in 9MFY21, versus a net loss of USD 126.2 million in pcp. The above indicates better operational efficiency and improved liquidity.

• Strong Guidance for Q4 2021 and FY2021: Considering the strong performance in Q3 2021, where the company exceeded its previously anticipated total volume, revenue, and adjusted EBITDA outlook, as well as continuing momentum in the business, the management raised the financial outlook for FY2021 and Q4 2021, where it expects strong numbers, which is a significant plus.

Source: Company Presentation 

• Industry beating margins and strong cash flows: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q3 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment 

The company is in the Information technology sector hence, the significant risk of technological change arises. Other risks are also there, such as acquiring new merchants and partners, consumer spending trends, evolving industry standards, intense competition, Currency fluctuations etc. 

Financial Overview of Q3 2021

Source: Company Filing

• Robust rise in revenue: In Q3 2021, the Company’s posted revenue increased by 96% to USD 183.9 million compared to USD 93.7 million in the previous corresponding period. The increase is due to total volume growth driven by an organic growth and acquisitions.

• Higher gross profit: Despite higher cost of sales which stood at 20.8 % as a percentage of revenue in Q3 2021, against 18.1% respectively in the pcp, the company recorded growth in gross profit at USD 145.6 million compared to USD 76.7 million in pcp.

• Operating profit scaled and stood at USD 39.5 million in the reported period compared to USD 15.9 million in pcp. The rise in operating profit was primarily due to higher revenues and higher gross profit.

• Turnaround from loss to profit: The Company posted a net profit of USD 28.0 million, compared to a loss of USD 77.8 million. The transformation was primarily due to higher operating profit, coupled with lower finance cost, partially offset by higher income tax in the reported quarter.
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 44.83% of the total shareholding. Smart2Pay Global Services B.V. and Fidelity Management & Research Company LLC hold the company's maximum interests at 10.03% and 7.14%, respectively. The company's institutional ownership stood at 69.41%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics 

Stock recommendation

In Q3 2021, the company achieved a number of significant milestones, including financial results that exceeded expectations, the release of new innovative product solutions, the expansion of its portfolio of alternative payment methods ("APMs"), the announcement of several exciting new customer wins, and the completion of three acquisitions that increased the addressable market, product capabilities, and geographic footprint.

When it comes to the business, the company's success is due to its unwavering commitment to enabling its customers interact with their customers in new ways, regardless of country, currency, or payment method, through its single integrated platform. The firm continues to grow at a rapid pace, and the company is well positioned for long-term, profitable growth. It also raised its financial outlook for the full year 2021 and reaffirmed the previously disclosed medium and long-term growth plans, which is a significant plus.

Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the current market price of CAD 75.99 at 10:51 A.M Toronto time on February 17, 2022. In addition, we have Global Payments Inc, Shift4 Payments Inc, Fleetcor Technologies Inc, etc., as a peer group for the comparison.

One-Year Technical Price Chart (as on February 17, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

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