Payfare is a buy, Paradigm Capital says

Paradigm Capital analyst Daniel Rosenberg has launched coverage of fintech player Payfare (Payfare Stock Quote, Chart, News, Analysts, Financials TSX:PAY) with a “Buy” rating.

On September 10, Rosenberg initiated coverage of PAY with a “Buy” rating and price target of $11.50, implying a return of 43% at the time of publication.

The analyst outlined his investment thesis on Payfare.

“Payfare is a fintech company that is benefitting from the strong growth of the gig economy,” he wrote. “A pioneer of earned wage access (EWA), Payfare has built a best-in-class solution and works with some of the world’s largest gig platforms. The company plays a crucial role in improving worker retention and engagement for gig platforms. Payfare has grown its user base significantly since its IPO and is now benefitting form operating leverage with accelerating profitability and cash flow generation. We see opportunity for Payfare to capture market share internationally and expand into adjacent verticals. There is also potential to accelerate growth through M&A, given a fragmented industry. Investors should be well rewarded as Payfare executes on its next stage of growth”

Rosenberg thinks PAY will post Adjusted EBITDA of $29.1-million on revenue of $239.4-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $37.5-million on a topline of $296.7-million in fiscal 2025.

“We value Payfare using a combination of an EV/EBITDA multiple and a DCF. We apply a 16.0x EV/EBITDA multiple to our 2025 EBITDA estimate. Our DCF utilizes a WACC of 9.50% and a terminal growth rate of 2.00%. PAY has carved out a niche in the highly competitive fintech space. Given significant growth in recent years, we think the company is still in its early days of scaling its business with a long runway of opportunities in the large gig economy space,” he added.