Nuvei Corporation

Nuvei Corporation (TSX: NVEI) is a global payment technology partner and provides intelligence and technology for businesses and assures seamless pay-in and payout capabilities.

Key Highlights:

• Solid Volume growth: In Q1FY21, the company reported a total volume of USD 20.6 billion, reflecting a whopping growth of 132% on y-o-y basis. The increase was aided by solid organic growth coupled with improved performance from the Smart2Pay and Base Commerce acquisitions. The company derives its revenue by charging a percentage of the volume transacted by the merchant and takes an added transaction fee and other static fees. Thus, a higher volume is a healthy sign as it pushes the overall income of the company.                                     

Source: Company Presentation

• Encouraging FY21 Outlook: For FY21, the company expects its total volume to remain within USD 83 billion to USD 89 billion, which had been revised from USD 81 billion to USD 87 billion. Revenue and Adjusted EBITDA is expected within USD 610-640 million and USD 264-277 million, respectively.              

Source: Company Presentation

• Acquired licenses of Mastercard and Visa payments: On June 02, 2021, the company reported that it has received the scheme licenses of Mastercard and Visa payments for the merchants who are based in the United Kingdom beyond the expiry of the FCA Temporary Permissions Regime. The above would offer a full suite of products and payment solutions for the Merchants, which is expected to support the transaction volume of the company.

• Issuance of subordinate voting shares: On June 07, 2021, the company announced the issuance of 7,165,378 subordinate voting shares at a price consideration of USD 69.78 per share. The group reported the gross proceeds of USD 500 million from the issuance. This is expected to enhance the overall liquidity of the firm.

Q1FY21 Financial Highlights:

• NVEI impresses with its quarterly result, wherein the company posted revenue of USD 149.895 million, significantly higher than USD 83.239 million in the previous corresponding period (pcp).
• The company reported a surge in its gross profit at USD 120.916 million, from USD 68.071 million in Q1FY20, thanks to the elevated income, partially offset by a higher cost of revenue (USD 28.979 million v/s USD 15.168 million in pcp).
• Operating profit jumped to USD 34.860 million, from USD 13.205 million in Q1FY20. The quarter witnessed a higher selling, general and administrative expense (USD 86.056 million v/s USD 54.866 million in pcp), due to higher commissions and increase in employee compensation.
• Net income stood at USD 27.790 million, as compared to a net loss of USD 62.343 million in the previous corresponding period. The difference was primarily due to higher operating income coupled with significantly lower net finance costs (USD 2.456 million v/s USD 29.913 million in pcp).

Income Statement Highlights (Source: Company Report)

Risks: The company’s performance has been spurred due to strong traction from the eCommerce segment. Hence, a change in the consumer preference from the eCommerce segment might impact the company’s performance. Moreover, the arrival of any other player within the industry might lead to a decline in transaction fees, and subsequently, the income of the group.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

The group received approval for the Mastercard and Visa payments gateway, which is a key positive, and it came when eCommerce growth is dominating the market. Notably, eCommerce represented approximately ~87% of total volume in Q1FY21, compared to approximately ~72% in Q1FY20. We expect the strong momentum within the ecommerce is likely to sustain in the coming days, and the group would benefit from it. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Global Payments Inc, WEX Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 84.10 on June 11, 2021.

One-Year Technical Price Chart (as on June 11, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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