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 by the company are mobile payments, online payments, and In-store payments.

Key highlights 

• Strong guidance for Q2 2021 and FY2021: Considering the strong performance during the three-month ended March 31, 2021, where it exceeded the previously anticipated total volume, revenue and adjusted EBITDA outlook, as well as continuing momentum in the business, the management is raising the guidance for the FY2021 and Q2 2021.             

Source: Company

• Added cryptocurrency flavor: The Company recently added pay-in and payout support for nearly 40 leading cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash, Litecoin, NEO and XRP. With this capability, merchants can now accept cryptocurrencies as any other form of alternative payment method at a time when both the number of cryptocurrency users continues to expand and mainstream adoption steadily increases.

• Riding on multi acquisitions wave: The company is focusing on nonorganic growth by acquiring Mazooma Technical Services Inc., and more recently, SimplexCC Ltd. Mazooma, a leading account-to-account payments service to the U.S. online gaming and sports betting sector, will strengthen the Company's dedication and presence in the industry by improving and extending its range of alternative payment options with a leading ACH network. Simplex is a cryptocurrency payment service provider, which would expand the company’s capabilities. In addition, the purchase would include an electronic money institution certificate, allowing end customers and retailers to open overseas bank account number accounts, potentially opening up options such as banking as a service.

• Robust operating performance: The Company is continuously showing a spirited performance across the Volumes, revenues, and EBITDA both on Y-o-Y basis as well as on sequential basis. In Q1 2021 total volume increased 132%, to USD 20.6 billion from USD 8.9 billion in Q1 2020, driven by organic growth and acquisitions. Revenue increased 80%, to USD 149.9 million from USD 83.2 million in Q1 2020 due to volume growth driven by organic growth and acquisitions, while Adjusted EBITDA increased 97%, to USD 65.5 million in Q1 2021 from USD 33.3 million in Q1 2020.

Source: Company

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the Company’s revenue increased by 80% to USD 149.8 million compared to USD 83.2 million in the previous corresponding period. The increase was due to total volume growth driven by the acquisitions and organic growth.
• Operating profit scaled up and stood at USD 34.8 million in the reported period compared to USD 13.2 million in pcp. The rise in operating profit was primarily due to higher revenues and higher gross profit.
• The Company posted a net profit of USD 27.7 million, compared to a loss of USD 62.3 million. The transformation was primarily due to higher operating profit, coupled with lower finance cost. 

Risks associated with investment

The company operates 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): EV to Sales 

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

Stock recommendation

The company posted robust quarter numbers, reflecting healthy momentum in the core business and the acceleration of new client wins contributing to 132% total volume growth, 80% revenue growth and 97% Adjusted EBITDA growth compared to the previous corresponding period. Moreover, the company is expanded its reach within new markets, added multiple alternative payment methods and introduced new capabilities like supporting payment in cryptocurrencies. We believe these initiatives coupled with significant volume growth from current and new clients, positions the group to drive strong performance and growth in the future. Therefore, based on the above rationale and valuation, we suggest a "Buy" recommendation on the stock at the closing price of CAD 83.45 on May 11, 2021. We have considered Visa Inc and Mastercard Inc as a peer group for comparison purpose.

Price Chart (as on May 11, 2021). Source: Refinitiv (Thomson Reuters)

Stantec Inc.

Stantec Inc. (TSX: STN) is a global engineering and construction firm which provides services like engineering, architecture, interior design, landscape architecture, surveying, etc., primarily in the North American region.

Key Highlights:

• Impressive Backlog backed by strong project wins: During Q1FY21, the company reported notable project wins from prominent names like Healthcare lab replacement and refurbishment, Electrical grid maintenance and upgrades, Cariboo Memorial Hospital Redevelopment etc. Notably, at the end of Q1FY21, backlog increased to CAD 4.6 billion, up 5.3% from FY20. 

• Impressive FY21 Estimates, Q1FY21 results are in-line with the company’s FY21 targets: Amidst the economic turmoil, the company expects decent growth from its FY21 operations and expects organic net revenue growth at low to mid-single digits, supported by expected strong performance within the regulated water market space, while organic growth from Canada is expected to be in the low single digits. The company’s Adjusted EBITDA stood at 14.7%, in line with FY21 targets of 14.5% to 16%, while adjusted net income came at 6.4%, close to the target of 6.5%.

Source: Company Report

• Ample Liquidity to support future operations: The company maintains optimum liquidity, supported by healthy cash generation, access to more than CAD 800 million of credit facilities, and addition CAD 600 million of credit support, subject to future requirements. Moreover, the company has CAD 310 million of senior term loan to support the overall liquidity. With the above, we believe the company would be able to meet its working capital requirements, repay long-term debt and meet its capital expenditures related to property, equipment, and software. 

• Foray into a new segment: Recently, the company launched digital technology segment, which would provide integrated digital services combining emerging technologies along with subject matter expertise and would cater to the timely client project challenges. Moreover, the company would actively use new aged functions like cloud computing, machine learning, AR/VR, blockchain, digital twins, IoT etc., in order to provide seamless service to its clients.

Q1FY21 Financial Highlights:

• STN announced its quarterly result, wherein the company reported a net revenue of CAD 878.7 million, lower than CAD 955.2 million in the previous corresponding period (pcp). The decline was primarily attributable to lower net revenue from the United States region (CAD 454.7 million v/s CAD 509.0 million in pcp).
• Gross margin was recorded at CAD 466.4 million v/s CAD 506.7 million in Q1FY21, while gross margin stood flat at 53.1%, v/s 53% in pcp. The quarter was marked by lower direct payroll costs (CAD 412.3 million v/s CAD 448.5 million).
• EBITDA from continuing operation stood at CAD 129.1 million v/s CAD 128.2 million in pcp. EBITDA margin improved to 14.7%, from 13.4% in pcp, supported by lower administrative and marketing expenses (CAD 341.5 million v/s CAD 367.3 million in pcp).

Source: Company Presentation

• The company reported net income of CAD 50.9 million from CAD 39.7 million in pcp. The improvement was supported by lower net interest expense (CAD 9.3 million, as compared to CAD 15.0 million in pcp).

Income Statement Highlights (Source: Company Report)

Risks:  The company’s performance might be impacted due to economic slowdown, which could lead to lower capital allocation from the clients and might delay the construction activities.

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

The quarter was marked by sound organic growth in its backlog from all the segments, which includes Buildings projects, growth in Energy & Resources and, Environmental Services etc. This is encouraging considering the ongoing economic cycle. Meanwhile, the contract backlog represents approximately 12 months of revenue generation. The management remained optimistic in achieving the annual targets by the end of FY21, despite few setbacks in the first quarter of FY21. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Jacobs Engineering Group Inc, Tetra Tech Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of STN at the last closing market price of CAD 53.89 on May 11, 2021.

One-Year Price Chart (as on May 11, 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.