Nuvei Corp

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

Key highlights 

• Base Commerce Acquisition would Expand Product Capabilities: On 4th January 2021, the Company announced the acquisition of Base Commerce, LLC, a leading provider of integrated payment solutions. We believe this acquisition will expand its product capabilities with a proprietary ACH processing platform, further diversifies its portfolio, enhances sponsor bank coverage, and enlarges the distribution network. 

• Single Source Provider: The company isdifferentiated by its proprietary technology platform, which is purpose-built for high-growth mobile commerce and eCommerce markets. They are a single-source provider of a comprehensive suite of payment solutions. Its solutions are designed to support the entire lifecycle of a transaction across mobile or in-app, online (via Application Programming Interface (“API”), unattended and in-store channels while providing what we believe is a superior payments experience.

• Expectations of higher volumes:The management is confident in achieving higher volume in the upcoming Q4 2020 as a result of Smart2Pay inclusion in the Company. In Q3 2020, total volume was USD 11.5 billion. 

Financial overview of Q3 2020 (in thousands of US dollars)

Source: Company

• In Q3 2020, the company’s revenue increased by USD 22.8 million or 32% to USD 93.5 million, compared to USD 70.7 million in the previous corresponding period. The increase was mainly because of total volume growth driven by the SafeCharge transaction and organic growth.
• Operating profit stood at USD 15.1 million in Q3 2020, compared to a loss of USD 4.1 million in Q3 2019. The rise in operating profit was primarily due to higher revenues and lower SG&A expenses.
• The Company posted a net loss of USD 77.8 million, compared to USD 65.6 million. The losses increased primarily due to higher finance cost in the reported quarter.

Risks associated with investment

The Company is exposed to risks of varying degrees of significance, affecting its ability to achieve its strategic objectives for growth. As the Company is in the Information technology sector; hence, the significant risk of technological change arises. Other risks include intense competition, and currency fluctuation risk. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Share recommendation:

The Company is a provider of payment technology solutions to merchants and partners in North America, Europe, Asia Pacific and Latin America. Moreover, the group is differentiated by its proprietary technology platform, which is purpose-built for high-growth mobile commerce and eCommerce markets.  Recently the group mad some acquisition, and we believe these would expand its product capabilities and enlarges the distribution network. Further, the company reported decent financial improvement in the third quarter. Therefore, based on the above rational and valuation, we recommend a “Buy” rating at the closing price of CAD 66.09 on January 7, 2021. We have considered Global Payments Inc, Mastercard Inc and PayPal Holdings Inc etc., as a peer group.

1-Year Price Chart (as on January 07, 2021). Source: Refinitiv (Thomson Reuters)

PrairieSky Royalty Ltd.

PrairieSky Royalty Ltd. (TSX: PSK) is the owner of subsurface mineral rights across various royalty properties in western Canada. The group encourages third parties to develop these properties, while also looking for additional petroleum and natural gas royalty assets. The corporation provides its third-party groups to explore, develop, or produce on its properties, while the company collects royalty income from the development of petroleum and natural gas. 

Key Updates:

• Improving Financials on Sequential Quarter basis: In the third quarter of FY20, the company reported revenues increased by 54% to CAD 43.5 million, comprised of royalty production revenues of CAD 38.4 million and other revenues of CAD 5.1 million, compared to Q2 2020. Funds from Operations increased 78% quarter over quarter to CAD 37.9 million (CAD 0.16 per common share basic and diluted).
• Strategic Location: The company’s asset base is strategically located across the heart of the oil and gas producing basins in Alberta, British Columbia, Saskatchewan and Manitoba. The company has licensed to ~13,000 km of 3D seismic, and covers ~3.3 million acres, and ~46,000 km of 2D seismic. Moreover, the group operates across more than 30 formations from high risk, deep targets to low-risk shallow oil and natural gas.
• Bullish Technical Indicator: At the last close, PSK shares traded well above the crucial short-term as well as long-term support levels of 30-day, 50-day, 100-day and 200-day SMAs and EMAs, which implies a long-term bullish trend. Moreover, the MACD crossover its 9-day SMA on January 06, 2021 trading session, with the difference between 12-day and 26-day EMAs is positive, another bullish trend.

Q3FY20 Financial Highlights:

• PSK announces its quarterly results, wherein the company posted revenue of CAD 43.5 million, as compared to CAD 58.8 million in the previous corresponding period (pcp). The decline was primarily attributable to lower crude oil volumes (6,572 bbls/days versus 8,011 bbls/day in pcp). Moreover, a slide in the realization price of crude oil (CAD 41.11/bbl versus CAD 59.04/bbl in pcp) further contributed to the decline in the royalty income.
• Net Earnings Before Finance Items and Income Taxes stood at CAD 12.3 million, slide significantly from CAD 20.3 million in Q3FY19. However, a lower administrative cost (CAD 4.1 million versus CAD 6.7 million) coupled with a decline in the depletion, depreciation and amortization (CAD 25.9 million versus CAD 29.2 million in pcp) supported the group’s performance.
• Net Earnings and Comprehensive Income came lower at CAD 9.4 million, as compared to CAD 16.7 million in Q3FY19.
• The group reported current assets of CAD 25.9 million, while its total assets stood at CAD 2,628 million.
• The group declared a third quarter dividend of CAD 13.4 million (CAD 0.06 per common share), representing a payout ratio of 35%

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The  company is also exposed to concentration risk as significant proportion of the group’s revnue comes from top-10 clients. Further, volatility in oil price would affect the group’s performance.

Valuation Methodology: P/CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company reported decent improvement in the third quarter of FY20 on a quarter-on-quarter basis, driven by gradually recovery in the energy demand and crude oil prices.  The company has a strong balance sheet, while the business model supports stable cash flows. With the gradual increase in the demand for crude oil, we expect the production volumes by the payors would remain elevated in the coming days, which would further support the company’s royalty income.  We have valued the stock using P/CF based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purpose, we have considered industry (Energy) average on NTM basis etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 10.82 on January 7, 2021.

1-Year Price Chart (as on January 07, 2021). Source: Refinitiv (Thomson Reuters).

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.