Nuvei has a huge upside, National Bank says

National Bank of Canada analyst Richard Tse has nothing new to say about Nuvei Corporation (Nuvei Stock Quote, Chart, News, Analysts, Financials TSX:NVEI), maintaining his “Outperform” rating and US$130/share target price for an estimated one-year return of 162.4 per cent in his latest update to clients on Tuesday.

Headquartered in Montreal, Nuvei Corporation is a global provider of payment technology solutions to merchants and partners in North America, Europe, Asia Pacific and Latin America with its own proprietary technology platform, which is purpose-built for high-growth mobile commerce and eCommerce markets. Its focus on technology, innovation and security enables it to design and develop tailored solutions for its clients.

Tse’s updated analysis comes after the company released its fourth quarter financial results, along with 2021 year-end figures.

“The company continues to track to our investment thesis that points to outsized growth from Nuvei’s pursuit of high-growth markets and broad payment technology stack,” Tse said.

Nuvei’s quarter was headlined by $211.9 million in revenue (all report figures in US dollars, unless
otherwise noted), staying relatively in line with the consensus estimate of $209.2 million and the National Bank expectation of $210 million. The figure also represents an 83 per cent year-over-year increase, with organic growth coming in at 55 per cent.

The company also reported significant growth from a number of markets, including a 93 per cent year-over-year increase in regulated online gaming ($180.8 million, 25 per cent of the company’s revenue mix), 504 per cent year-over-year growth in social gaming ($52.1 million, 7.2 per cent of company revenue), and year-over-year growth of over 1,600 per cent in digital assets and cryptocurrencies ($80.5 million, 11.1 per cent of company revenue).

Meanwhile, the company’s adjusted EBITDA came in at $91.5 million, which came in slightly ahead of the $83.6 million consensus estimate, as well as being slightly above the National Bank projection of $88.6 million.

“We have made tremendous progress while investing in our flexible, scalable, modular technology platform to address the rapidly evolving global and local needs of our customers,” said Philip Fayer, Nuvei’s Chair and CEO in the company’s March 8 press release.

“As our addressable market increases, four pillars underpin our trajectory and remain central to our strategic priorities in driving the future of commerce: product innovation, growth with existing customers, attracting new customers, and acquisitions.”

Along with the increased category disclosure in the company’s conference call, Tse’s key takeaways included solid KPIs, led by Q4 GPV of $31.5 billion for 46 per cent sequential growth and 127 per cent year-over-year growth while beating the National Bank of Canada estimate of a $26.1 billion GPV.
In addition, the company’s Merchant Transaction and Processing Revenue came in at $210.3 million for 16 per cent sequential growth and an 83 per cent year-over-year increase, while also coming in slightly ahead of the National Bank of Canada estimate of $207.7 million on account of higher-than-expected payment volumes.

After Nuvei ended 2021 with $724.5 million in revenue, Tse continues to forecast growth for Nuvei, as he put forth a 2022 projection of $969 million, up from his previous $936 million estimate and ahead of the consensus target of $943 million, for a potential year-over-year increase of 33.7 per cent. From there, Tse forecasts Nuvei joining the ten-figure club with a 2023 projection of $1.26 billion for a potential year-over-year increase of 29.8 per cent.

From a valuation perspective, Tse projects the company’s EV/Sales multiple to drop from the reported 9.8x in 2021 to a projected 7.3x in 2022, then again to a projected 5.6x in 2023.

Tse also slightly lifted his adjusted EBITDA estimate for 2022 to $419.7 million (previously $415 million,
consensus estimate $412 million), implying a margin of 43.3 per cent. Looking ahead to 2023, Tse forecasts a wider implied margin of 47.3 per cent with $594.8 million in adjusted EBITDA.

In terms of valuation, Tse projects the company’s EV/EBITDA multiple to drop from the reported 22.3x in 2021 to a projected 16.9x in 2022, then to a projected 11.9x in 2023.

“We continue to believe Nuvei is at the forefront of a payments market that continues to undergo a meaningful transformation,” said Tse, who also pointed to the stock being shorted in December as a potential investment opportunity. “Within that market, Nuvei remains a disruptive player with outsized growth relative to the sector.”

The quarterly results provided something of a bounceback for Nuvei as it jumped 13.6 per cent from the March 7 close of C$56.53/share, which represented a 52-week low for the company. All told, with the short accounted for, Nuvei’s stock has dropped by 18.1 per cent over the last 12 months, and 16.3 per cent since the start of 2022.