National Bank National Bank Financial analyst Richard Tse thinks the risk-reward proposition for Nuvei Corp. looks “very compelling” at its current share price.
“If you’ve been following this name, you know very well the stock’s volatility since becoming a public company in 2020 with the most recent driver of that volatility coming from its last reported quarter when its decision to exit a customer relationship and the moderating of both its near-term and mid-term growth targets fuelled another pullback,” he said. “Regardless of what those drivers of volatility may be, the reality is that the number of occurrences fuels the lower (relative) valuation against its peers.
“Yet, as we look at today’s valuation of 8.6 times (EV/EBITDA F23) against our growth estimates – total and organic - NVEI is looking very compelling.”
Mr. Tse said a recent lunch with a group of executives from the Montreal-based payment processor brought greater clarity on in its decision to cut growth targets.
“Our focus undoubtedly was to assess the risk to our numbers, particularly in the short term, the reasonableness of the assumptions around the short and mid-term outlook and additional commentary that the Company’s intentional exiting of a top 10 customer is not reflective of its product offering that would risk other exits, all paired against our own industry diligence,” he said.
For 2023, the analyst said Nuvei explained its moderating growth rate by pointing to three factors: “1) the intentional exiting of a top 10 customer; (2) the timing of onboarding new customer wins; and (3) Paya’s same-store sales were slightly below expectations.”
“In general, the Company intimated it was overly optimistic on the above and it appeared the outlook reflects more conservatism,” said Mr. Tse.
“What we Think: While (1) and (3) are obvious reasons why the full-year outlook would be moderated, we really did not appreciate the extent of how the new wins impact that outlook depending on the timing of those wins and how they ramp, not to mention that larger enterprise deals add complexity to the timing given potential scope changes. In our view, the latter appears reasonable and actually lines up with our own diligence that’s been pointing to larger enterprise wins at Nuvei. So, while the most recent quarter (FQ2′23) had year-over-year organic growth decelerating to approx. 9 per cent (vs. approx. our 15 per cent year-over-year in FQ2′22), we think the Company will see a reacceleration which would have us estimating F24 growth at approx. 18 per cent (14-per-cent organic).”
Also believing its long-term estimates are more conservative than necessary and seeing Paya Holdings Inc. as “a unique channel for Nuvei and potentially a prescient move in the sector,” Mr. Tse maintained an “outperform” recommendation and US$27 target for the company’s shares. The average on the Street is US$35.05.
“We believe the risk profile in this name is high relative to its peers given what we’ve noted at the beginning of this note; yet NVEI’s valuation already reflects much of that risk,” he said. “Based on reflection of what we heard over lunch late last week, we continue to think Nuvei has differentiated itself by focussing on outsized
growth segments with an la carte go-to-market while (more recently) expanding its TAM [total addressable market] into larger enterprise merchants. At 7.4x EV/EBITDA (CY24), that represents an approximate 3.0 times discount to its closest peers – a considerable discount.”