Nuvei Corp T.NVEI

RBC

[retiredcf]

Even better! GLTA

December 9, 2021

Nuvei Corporation
Reaffirming our Outperform following short report

Our view: Nuvei’s shares closed down 40% following the publishing of a short report. The points raised in the short report are not material to our positive investment thesis on Nuvei. While the report may weigh on the shares in the near-term, we believe sustained consistent quarterly execution (growth, cashflow) will help fuel normalization in Nuvei’s valuation multiple in time. Maintain Outperform, $145 target.

Key points:

• Organic growth momentum reinforced. A key aspect of our investment thesis is Nuvei’s organic growth momentum, which has averaged 45% over the 5 quarters since the IPO (above 18% in our model at the time) and the company guided to 30% over the medium-term in August 2021 (investors looking for mid-teens at the time). Points raised in the short report reinforce rather than refute this growth. The decline in Nuvei’s legacy card present business (predominately SMB in North America) implies the organic momentum in the company’s digital segment is stronger than headline organic growth. Lower revenue at acquired businesses validates Nuvei is acquiring capabilities, not revenue. Nuvei’s reaffirmation of FY21 guidance implies low-to-mid 40% organic growth Q4/FY21e (high 70% on a double-stack basis), which refutes concerns regarding a “COVID bump”.

• Cashflow speaks for itself. In the 5 quarters as a public company, Nuvei has generated $236MM FCF, which is more than double the $111MM in our model at the time of the IPO. FCF conversion as a % of adj. EBITDA has averaged 74%, above the 51% in our model at the time of the IPO. Nuvei’s strong FCF is despite the company increasing investments in sales & marketing. Strong FCF and high conversion validate the attractive market structure within digital payments.

• Nuvei is now trading at a ~50% discount to high-growth peers. Nuvei is trading at 22x CY22e EV/EBITDA, below high-growth payments peers at 41x. The wide discount is despite Nuvei’s growth above peers. In our view, the pullback in the stock and the discount to peers are overdone, considering our outlook calls for the healthy fundamentals of the company to be sustained.

• What could happen from here? Nuvei reaffirmed its FY21 guidance and medium-term 30% growth outlook. We believe sustained and consistent quarterly execution (growth, cashflow) would help narrow Nuvei’s discount to peers over time. Additional quarterly disclosures would help investors better understand the drivers of growth in Nuvei’s business. Moreover, Nuvei and management purchasing shares would help improve sentiment. Conversely, Nuvei missing Q4 expectations or guiding FY22e growth below consensus would sustain the discount.

• Maintain Outperform, target unchanged at $145.00. We are reiterating our Outperform on Nuvei. While volatility in the shares is unfortunate, it creates a buying opportunity for investors, in our view. Our US$145.00 target is unchanged and equates to a multiple of 40x CY23e EV/EBITDA.