Nuvei is an expensive bet, this investor says

Digital payments has been a hot sector of the market this year and that also goes for Canadian company Nuvei Corp (Nuvei Stock Quote, Charts, News, Analysis, Financials NASDAQ:NVEI) which has more than tripled in value since its IPO last fall. But those gains by Nuvei plus the still-evolving nature of the digital payments space itself are cause for caution on the stock, according to portfolio manager Bryden Teich of Avenue Investment Management.

“Nuvei has been around since the early 2000s and, obviously, they’ve really benefited from the growth in the payments side in the last several years. I think they’re very well positioned to continue growing their business in that payment space,” said Teich, partner at Avenue Investment, who spoke on BNN Bloomberg on Wednesday.

“But specifically to the investment side, it’s trading at a very high valuation, so for us it’s well beyond what we would be comfortable paying for an investment like this,” he said.

Montreal-based Nuvei provides mobile commerce and e-commerce solutions for merchants and partners in North America, Europe, Asia Pacific and Latin American and its solutions include analytics tools and risk management services along with a suite of payment processing offerings. The company closed last September on an initial public offering of about 31 million shares at $26 per share for gross proceeds of $805 million, while last month Nuvei priced a US IPO to list on the NASDAQ for gross proceeds of $424.8 million (all figures in US dollars).

Since beginning trading on the TSX last year, NVEI has delivered about a 200 per cent return, rising as high as $171.78 this past September before pulling back to the $130-$140 range more recently.

The company has seen its business pick up impressively over the past 12 months as e-commerce continues to benefit from accelerated usage during COVID-19 and beyond. Nuvei’s third quarter 2021, announced earlier this month, featured revenue up 96 per cent to $183.9 million while total volume on its platform rose by 88 per cent to $21.6 billion. The company’s adjusted EBITDA rose 97 per cent to $80.9 million while adjusted net income per share was $0.42 compared to $0.17 per share a year earlier.

“We achieved a number of significant milestones in the third quarter including financial results that exceeded the outlook previously provided, releasing new innovative product solutions, growing our portfolio of alternative payment methods (“APMs”), announcing several exciting new customer wins, and completing three acquisitions that enhance and expand our addressable market, product capabilities, and geographic footprint,” said Philip Fayer, Nuvei’s Chair and CEO, in a November 9 press release.

Management upped its yearly guidance with the Q3 report, as well, calling now for full year 2021 revenue between $717 and $723 million versus the previous outlook between $690 and $705 million, while EBITDA took a jump, too, going from previously between $295 and $305 million to between $312 and $316 million.

Nuvei has recently been extending its reach within the online gaming and sports betting circles in the US, gaining customer wins in BetMGM, 888 and SI Sportsbook as well as becoming the payment solution for Dutch online casino Holland Casino. On the BetMGM catch, Fayer said the partnership, “further solidifies our technological prowess and deeply rooted expertise in iGaming. Our growing client base in the US sports betting market is a testament to our experienced team and robust platform,” said Fayer in an October 14 press release.

For Teich, however, Nuvei is but one option among a string of them in payments, with his firm seeing little to indicate which companies will eventually capture the bulk of the market share.

“In doing a little bit of work on [Nuvei], one of the concerns we had is that the payment space is likely to increasingly become more competitive, and so it’s very hard to separate who the winners are going to be and who the losers are going to be. So, if you look at a stock like Nuvei, if you look at PayPal or Square, all of these companies from a share price perspective have done really well, but they’re all at very extreme valuations, and it’s not clear who the long term winners are going to be,” Teich said.

 “So we don’t pretend to have an edge on knowing that so we pivot to other segments of the technology space that we’re much more comfortable with both from a valuation perspective and also on business outlook. We’d rather own businesses that we can better understand and be more comfortable with than being in an exciting part of the market like payments but not knowing who the long-term winners are going to be,” he said.

“But it’s not to say they don’t have a great long term outlook. It’s just not something we’re comfortable owning here at this kind of valuation,” Teich said.