Nuvei Corp

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 

• Focusing on inorganic growth: On 4th January 2021, the Company announced the acquisition of Base Commerce, LLC, a leading provider of integrated payment solutions. We believe this acquisition would expand its product capabilities with a proprietary ACH processing platform, further diversifies its acquiring portfolio, enhances sponsor bank coverage, and enlarges the Company’s distribution network. 

• Integrating Smart2Pay: The group is integrating Smart2Pay, under its brand and platform. The Smart2Pay is a going forward APM microservice which would enhance the company’s ability to identify and integrate with APMs worldwide. Furthermore, this would diversify the revenue mix across verticals and reduces the customers concentration. 

• Robust performance: The Company is continuously showing a spirited performance across parameters which include volumes, revenues, and EBITDA both on Year-over-Year basis as well as on sequential basis. In Q3 2020, the volumes grew 62% which reflected a healthy growth in revenue at 32% and Adjusted EBITDA at 59%, compared to the previous corresponding period. In the below matrix the volume is in billion of USD, while other data in in millions of USD. 

Source: Company, volume is in billion, while other data in millions

• 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 the results of Smart2Pay will be included in the Company. In Q3 2020, total volume was USD11.5 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 is due to 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 are also there, such as acquiring new merchants and partners, consumer spending trends, evolving industry standards, intense competition, Currency fluctuations etc. 

Valuation Methodology (Illustrative): Price to Cash Flow

(Note: All forecasted figures and peers have been taken from Thomson Reuters). 

Stock recommendation

The Company is a provider of payment technology solutions to merchants and partners in North America, Europe, Asia Pacific and Latin America. We believe the group is differentiated by its proprietary technology platform, which is purpose-built for high-growth mobile commerce and eCommerce markets. The Company is continuously showing a spirited performance across the Volumes, revenues, and EBITDA both on Year-over-Year basis as well as on sequential basis. Recently the group made some acquisitions, and we believe these acquisitions would expand its product capabilities and enlarges the Company’s distribution network. Hence, considering the aforesaid rationale and valuation, we have given a “Buy” rating in the stock at the closing price of CAD 68.40 on February 1, 2021. We have considered Visa Inc, Mastercard Inc and PayPal Holdings Inc etc., as a peer group.

Source: Refinitiv (Thomson Reuters)

Evertz Technologies Limited

Evertz Technologies Limited (TSX: ET) is a Canadian provider of telecommunications equipment and technology solutions to the television broadcast and new-media industries. Evertz equipment is used in the production, post-production and transmission of television content. 

Key Updates:

• New Purchase Order: Recently, the group received a new purchase order from a Major US Broadcaster amounting to CAD 21 million that includes the delivery of Evertz solutions, which would be used for cost optimization to support additional profitability.
• Better than Industry-margins: The group reported improved margins as compared to the industry median, and posted gross margin, EBITDA margin and net margin of 59.4%, 34.2% and 21.1%, respectively, as compared to the industry median of 52.7%, 16.2% and 5.4%, respectively.
• Sequential improved numbers: The group reported a revival in its performance, after a fall in Q1FY21, driven by a revival in the overall macro scenario, which is a key positive. Revenue, gross profit, net income grew to CAD 100.5 million, CAD 59.7 million and CAD 21.2 million, respectively, higher than CAD 56.3 million, CAD 32.2 million and CAD 0.6 million in Q1FY21, respectively. We expect the momentum to continue in the coming quarters as well.

Q2FY21 Financial Highlights:

• ET announced its quarterly results, wherein the group posted revenue of CAD 100.482 million, lower than CAD 119.788 million in the previous corresponding period (pcp). The decline was majorly attributable to decline in revenue from the United States/Canada segment at CAD 66.915 million, as compared to CAD 86.573 million in Q2FY20, partially offset by an improved sale from International segment (CAD 33.567 million versus CAD 31.197 million in pcp).
• Gross margin stood at CAD 59.659 million, lower than CAD 69.322 million in pcp, primarily attributable to lower revenue, partially offset by lower cost of goods sold (CAD 40.823 million versus CAD 50.466 million in pcp).
• The quarter was marked by lower selling and administrative cost (CAD 13.853 million versus CAD 19.175 million in pcp), a decline in research and development expense (CAD 20.520 million versus CAD 23.772million in pcp).
• Earnings before income taxes stood higher at CAD 28.118 million, as compared to CAD 27.283 million in the previous corresponding period (pcp).
• The group posted net earnings for the period at CAD 21.188 million, as compared to CAD 20.526 million in pcp.
• The group posted a Cash and cash equivalents of CAD 110.042 million, while total assets were recorded at CAD 452.312 million.

Q2FY21 Income Statement Highlights (Source: Company Reports)

Risks: The services of the company require constant innovations, which might lead to an increase in the R&D costs and could take a toll on the profitability. Moreover, due to increase in competitions, the group might face price competition resulting in a lower product pricing.

Valuation Methodology (Illustrative): Price to CF based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The company reported significant improvement in the cash from operations for 6MFY21, which stood at CAD 57.129 million, versus an outflow of CAD 5.047 million, a year ago. The improvement was driven by improved working capital management. The group reported improved performance compared to the previous quarter and we expect the momentum to continue in the coming quarters as well. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Communications and Networking) median on the next twelve months basis. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 13.01 on February 1, 2021.

ET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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