It’s been a long way down for Canadian payments company Nuvei (Nuvei Stock Quote, Charts, News, Analysts, Financials TSX:NVEI) and shareholders likely haven’t been too pleased with the path taken by the stock over the past six months. But with a smart-looking rally over the month of March, Nuvei may now be worth a look, says Jason Mann of EHP Fund, who thinks the company’s strong prospects could make it a long-term hold.
“Nuvei is interesting because it was a market darling, not yet profitable back when it was $160 a share. It came off on a short seller report and was already in a bit of a downtrend prior to that. We were actually short Nuvei (we are long/short fund) but we’ve covered that,” said Mann, co-founder and chief investment officer at EHP Fund, who spoke about Nuvei on a BNN Bloomberg segment on Thursday.
Montreal-based Nuvei is a payments solutions provider to merchants and partners with business worldwide and a proprietary technology platform suited for mobile business and e-commerce. The company had revenue in 2021 of $724.5 million, up 93 per cent from the previous year, with 61 per cent organic revenue growth. The total volume of transactions on its platform went up 121 per cent last year to $95.6 billion, and the company aims to push further into the online gaming and sports betting markets going forward. For the current 2022 year, management is forecasting revenue to climb to between $940 and $980 million, while adjusted EBITDA is expected to go from $317.2 million to between $407 and $425 million. (All figures in US dollars.)
“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 Nuvei Chair and CEO Philip Fayer in a press release for its fourth quarter and full 2021 financials in early March.
“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. These lay the foundation for us to build on our momentum which is reflected in the financial outlook we are providing today of revenue between $940 million and $980 million, representing year-over-year growth of 30 to 35 per cent,” Fayer said.
But the stock got hammered in December after a short-seller report alleged among other things that the company was misleading investors on the profitability of recent acquisitions. Just over a year into its tenure as a public company — in September of 2020 Nuvei became Canada’s largest-ever tech IPO on the TSX with an $805-million initial public offering — NVEI had gone from trading at $45 per share in September, 2020, to as high as $175 by mid-September, 2021. Then came the pullback and short report, combined with a general turn in the market away from growth stocks and NVEI got back down to $56 per share in early March before climbing now back to the mid-$90s.
Mann says the selloff may have gone too far on Nuvei.
“One of the one of the things that we look for is when a stock gets oversold, which is really anything that’s down 40 per cent over six months — a very quick decline from a peak. That is a warning signal for us that we don’t necessarily want to be long but we don’t want to be short it anymore,” Mann said.
“And there were quite a few stocks that fell into that grouping: Lightspeed and Shopify are two other examples and now Nuvei,” he said.
“What makes Nuvei a little bit different is it’s actually a company that has cash flow. It’s certainly not cheap. But it is a real business — and I only say that because some of the really speculative US stocks that had huge runs were really almost not real businesses. They just don’t have a path to profit. Nuvei certainly does. It’s the type of company that I actually could see on the long side for us if its price momentum improves. Its valuation is actually not that bad. So yes, if you can stomach the volatility I think it’s something you can buy now,” Mann said.
National Bank Financial has an “Outperform” rating on Nuvei with a $130.00 target price, with analyst Richard Tse saying that the company’s strong performance in markets like online gaming, social gaming, digital assets and cryptocurrencies shows there’s plenty of growth ahead. Tse also said the dramatic pullback in the stock triggered by the short report and broader market rotation present investors with an opportunity to buy Nuvei.
“We continue to believe Nuvei is at the forefront of a payments market that continues to undergo a meaningful transformation. Within that market, Nuvei remains a disruptive player with outsized growth relative to the sector,” said Tse in a March 8 report to clients where he reiterated his call on Nuvei as a “Top Pick” in 2022.
National Bank Financial delivered a fourth quarter earnings preview on January 23, saying while the road ahead may be bumpy...