After a huge first 12 months as a publicly traded company Canadian digital payments name Nuvei (Nuvei Stock Quote, Charts, News, Analysts, Financials TSX:NVEI) has hit a rough patch, as have a lot of stocks in the payments space. But if you can handle the bumpy road, this could be a profitable longer term ride, says portfolio manager Jason Mann, who has crunched the numbers and thinks Nuvei comes out pretty good.
Nuvei is a $17-billion market cap company in the mobile commerce and e-commerce solutions business globally with payments products, analytics and risk management capabilities on its platform. The company is in over 200 markets worldwide and supports over 500 local and alternative payment methods and over 200 currencies including cryptocurrencies and its payments business has recently been expanding in the online gaming and sports betting markets in the United States.
Montreal-based Nuvei had its Canadian IPO in September of 2020 where it took in proceeds of $805 million on the public offering. Just last month, the company debuted on the NASDAQ, bringing in $424.8 million. (All figures in US dollars.)
And while the stock has gone through the roof — this past summer NVEI doubled between June and the end of September — it’s had about a 30 per cent pullback more recently, leaving investors wondering what’s up next.
Mann thinks there could be upside ahead.
“We look at the world in terms of our stock picks and we’d be in the quantitative camp. That means we look mostly at the facts of a company as opposed to the story,” said Mann, chief investment officer at EHP Funds, who spoke on BNN Bloomberg on Friday. “We’re looking at three things: what is its valuation, what is its trend or its price momentum and how volatile is the stock? And ultimately, we want to bias ourselves to owning cheap, rising, stable stocks and we want to short the opposite.”
“So when we look at Nuvei it actually is a small long position in one of our funds. It has come off on price momentum more recently as have a lot of the payments providers like Visa and MasterCard, as good examples, but it still has good price momentum on a longer term timeframe which is what we’re looking at. And valuation actually isn’t bad,” he said.
By way of comparison with some of Nuvei’s admittedly larger fintech peers in the US, PayPal has come off about 40 per cent over the past three or so months, Visa is down 20 per cent and Square is down about 25 per cent. On the Canadian side, mobile payments company Payfare (Payfare Stock Quotes, Charts, News, Analysts, Financials TSX:PAY) is down 34 per cent since mid-July while leasing and lending company goeasy (goeasy Stock Quotes, Charts, News, Analysts, Financials TSX:GSY) is up 22 per cent over a similar stretch.
Nuvei reported strong numbers in its third quarter, published earlier this month, showing revenue up 96 per cent year-over-year to $183.9 million and net income up to $28.0 million compared to a net loss of $77.9 million a year ago. The total volume of transactions Nuvei processed over the quarter was up 88 per cent from a year earlier to $21.6 billion, with the company saying increases came across all four regions in which it operates: North American business was up 118 per cent, Europe, the Middle East and Africa were up 62 per cent, the Asia-Pacific was up 140 per cent and Latin America was up 93 per cent.
For the quarter ahead, management upped its guidance, calling for between $717 and $723 million in revenue (previously between $690 and $705 million) and for between $312 and $316 in adjusted EBITDA (previously between $295 and $305 million). Over what it calls the medium term, Nuvei management has forecasted transaction volume to grow by 30 per cent and revenue to also grow by 30 per cent. Over the long term, the call is for its adjusted EBITDA margin to be at 50 per cent.
“We continue to experience significant momentum in the business and are well-positioned for sustainable and profitable growth. We are proud of our results and raising our financial outlook for the full year 2021 and reiterating our previously announced medium and long-term growth targets,” said Nuvei Chair and CEO Philip Fayer in a press release.
For Mann, the numbers seem to add up.
“Nuvei scores in the top 70 per cent of valuation for us, not on every metric but [it has] a solid balance sheet, a beat on earnings, it’s growing and has reasonable return on equity. So, of the technology companies this one isn’t bad in terms of its valuation, so probably worth adding at this level,” Mann said.
“It’s certainly not the cheapest stock we look at but but it’s it’s trend has kept us in a long position,” he said.
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