RBC RBC Dominion Securities analyst Daniel Perlin expects “much of the same” during third-quarter earnings season for North American electronic payment solutions providers.
“Overall consumer payment volumes have remained relatively consistent for July/Aug with higher oil prices helping some of the average tickets, FX is generally worse (less of a tailwind) than when management teams last provided guidance, FX volatility remains low and provides for challenging comparisons, and travel is still holding in, but at a decelerating rate,” he said. “We believe most of the prints will be in line to slightly better as management teams mostly set guidance last quarter with an expectation that the overall macro backdrop would remain similar to 2Q23, which all else equal, appears to be the case. As in prior quarters we have tried to identify companies with specific tilts that might offer upside or downside opportunities/risks or other idiosyncratic growth drivers to offset some of the cyclicality of the volumes. We expect implied 4Q23 guides to be relatively conservative, with any early reads on FY24 to prove even more conservative. Overall, we are anticipating 3Q23 to be a largely consensus-driven quarter with few outliers and management commentary that will remain very balanced.
“Buyside expectations appear relatively muted for the group with most investors that we have spoken with favoring the lower risk names such as MA, V, FISV, and GPN, with very few looking to get more aggressive on some of the more ‘risk-on’ type names, such as NVEI, SQ, or LSPD.”
In a research report released Tuesday, Mr. Perlin said investor sentiment toward Nuvei Corp. and Lightspeed Commerce Inc. , both based in Montreal, is “slightly negative.”
However, he sees a “positive” setup for Nuvei, given “recent weakness and low expectation hurdle,” and is projecting a “modest” earnings beat.
“On the positive side of the ledger, as we look at the model setup, we believe our $307-million total revenue estimate (slightly above the Street’s $304-million) is achievable and is built off global ecom growing 23 per cent year-over-year, which would yield $149-million, a modest seq step-down (assumes the large client that NVEI is transitioning away from begins, while other new logos in the pipeline begin to convert), assumes FX is a tailwind of approximately $6-million, which based on average FX in 3Q, could have modest upside, and Paya grows 8 per cent year-over-year (similar to 2Q/23),” he said. Meanwhile digital assets likely remain similar to 2Q23′s level, we are modeling $18-million.”
He reiterated a “outperform” rating and US$29 target for Nuvei shares. The average is US$39.88.
“Going into 3Q23, NVEI shares are down 50 per cent since last reporting earnings vs. the SPX down 4 per cent, as last quarter’s commentary clearly disappointed the market, with a large client de-conversion and more challenging conversion cycle for large enterprise wins,” said Mr. Perlin. “With this negative commentary built into the stock, in our view, coupled with recent negative sentiment around pricing pressure in enterprise ecom (given Adyen’s 1H23 commentary), we believe the expectation hurdle is low going into the print, while our model and Street estimates appear well calibrated for many of the puts/takes, with a bias to the upside. The stock is also cheap, in our view, trading at 7 times FY24E EV/ adj. EBITDA, which is well below slower growth peers (GPN, FI, FIS, FLT).”
For Lightspeed, Mr. Perlin is expecting in-line quarterly results and sees a “neutral” setup, despite recent share price weakness.
“The Unified Payments strategy remains debated, with the Bulls pointing to recent quarter trends, with GPV % penetration into GTV of 22 per cent, up 300 basis points sequentially and management sticking to its 30-35 per cent by year-end FY24; while the Bears suggest that customer churn could accelerate, gross margins will likely remain under pressure as payments increase as a percentage and LSPD Capital is required to offset degradation (90-per-cent gross margins), but puts more risk on the balance sheet near term. We believe both points are accurate but would note that if the Unified Payments strategy is successful and able to achieve 50-per-cent penetration by FY25, then there could be more upside to our adj. EBITDA estimate for FY25.”
He has an “outperform” rating and US$21 target for Lightspeed shares. The average on the Street is US$20.31.