Should Investors Book Profit on this Technology Stock– NVEI

Nuvei Corporation. (TSX: NVEI) is a provider of payment technology solutions to merchants and partners. It provides mobile payments, online payments, and In-store payments solutions. The group is operating across North America; Europe, the Middle East, and Africa; Latin America; and the Asia Pacific.

Why Should Investors Book Profit?

• Declining Net Income: For the Q4FY21, the company reported a dip of 45% in its net income of USD 12.33 million as compared to the net income of USD 22.57 in the previous comparable period. The decline was due to increased finance cost and income tax expenses.

• Declining profit margins sequentially: The company reported a decline across its profit margins on a sequential basis, which is reflected in its books. For Q4FY21, the group’s Gross Margins were 76.8%, lower than 79.2% in Q3FY21. For the reported period, EBITDA margins dropped to 27.2% as compared to 38.2% in the previous quarter. For Q4FY21, the Net Margins shrunk to 5.8% vs 15.2% in Q3FY21.

        Source: Refinitive, Analysis by Kalkine Group 

• Stretched Valuations: The company is currently trading at the higher valuations on NTM EV/ Sales multiple of 9.4x as compared to the Industry median (Technology) of 3.1x. On Price/ Earnings multiple, the group is trading at 33.4x vs the industry median of 14.3x. Further, on the NTM Price/ Cash flow multiple the company is priced at 25.8x, which is higher than the industry median of 16.4x. The highly stretched valuations distort the confidence of further run-up as compared to the industry valuations and reduces the margin of safety for the investors.
  

• Higher Debt: For FY21, the company reported higher Debt in the form of Loans and Borrowings of USD 501.24 million as compared to the loans and borrowings of USD 212.72 million on the FY20. The increase in debt of more than 100% on an annual basis is a serious red flag for the company, especially in the current scenario of rising interest rates.
  

Valuation Methodology (Illustrative): EV/ EBITDA Multiple based

Stock recommendation

Though the company reported an increase in its organic revenues for the Q4FY21 of USD 179.13 million as compared to the USD 115.90 million in the pcp, whereas the net income declined to USD 12.33 million for the reported period vs USD 22.57 million in the previous comparable period. To add more, the increased debt level is a significant concern, especially during the rising interest rate scenario, which will put an extra burden on the company's financials in terms of the higher interest cost. On the valuation front, the stock is measured on the NTM EV/ EBITDA multiple based and currently trading at 20.5x which is higher than the industry median (Industrials) of 10.6x, implying the stock is highly overvalued at these levels. For the valuation, we have considered PayPal Holdings Inc., Fiserv Inc., Fidelity National Information Services Inc., etc as the peer group for the comparison. 

Therefore, based on the above rationale and valuation, we recommend a “Sell” rating at the last closing market price of CAD 94.03 on March 22, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 22, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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