Company Reports

We reduce our fair value estimate for narrow-moat Nexi to EUR 10.40 per share from EUR 15.80. The European payments provider's guidance for 2024 of mid-single-digit growth was below the mid- to high-single-digit growth we had foreseen for Nexi. Although medium-term guidance points toward acceleration beyond 2024, we have adjusted our growth forecasts downward accordingly. Moreover, we have shortened our stage 2 growth assumptions and increased our weighted average cost of capital, which we believe better reflects the new outlook for Nexi both organically and inorganically within the European payments space. We reiterate our narrow moat rating despite shortening our assumptions on how long Nexi will be able to hold competitors at bay. Nexi's scale as one of the largest payment providers in Europe and, in particular, its strong positioning in the Italian market justifies a narrow moat, in our view. Our Uncertainty Rating is High.

Nexi offers merchant acquiring, card issuing, and digital banking services to its clients. Through the combination and shedding of various payment assets, Nexi has created a compelling suite of offerings that are supported by durable and structural growth drivers. With its latest two large acquisitions, Nets and SIA, Nexi has also gained a wider footprint in Europe as well as stronger processing capabilities. As such, Nexi has moved from an Italian pure-play to a fully vertically integrated European payment services provider at the top of European rank tables.

Narrow-moat Nexi reported a decent third quarter. After a surprising third-quarter update by Worldline, which flagged a sudden shift in shopper behavior in Germany, Nexi’s results look less affected by what its peer had lamented just two weeks ago. Additionally, Nexi highlighted that it underwent an audit by German financial regulator BaFin in 2021, which highlighted minor remediation actions. Nexi stated that it closed the business in question and any impact had already been absorbed in 2022. We maintain our EUR 15.80 per-share fair value estimate.

We are placing Worldline under review after the payment provider lowered revenue guidance for 2023 and announced the termination of merchant contracts in Germany. Worldline posted 4.8% organic revenue growth in the third quarter, a material slowdown from the 9.3% growth posted over the first half of 2023. The culprits were weak financial services performance (down 2.9%) as well as a relatively poor showing from merchant services (up 7.6%). Merchant services is Worldline’s largest segment and has been its core growth driver (up 13.1% in the first half of 2023). The financial technology firm cited a sudden change in consumer behavior in Germany as the core driver behind its disappointing merchant services segment performance. The dramatic share price reaction is partially explained by this unexpected and sharp trend change revealed on Oct. 25. However, we believe that the termination of some online merchants that Worldline undertook since the second quarter of 2023, but only made public on Oct. 25, is of greater concern to investors. We plan to update our model and fair value estimate shortly. We see heightened risk around the merchant relationship terminations and also believe management lost credibility on Oct. 25 by not giving any form of reliable guidance and outlook. None of this bodes well for a quick reversal of the poor Worldline share price performance recently.

Nexi reported second-quarter EBITDA of EUR 436.1 million, up 10.1% from the same period a year ago, on a good performance in merchant solutions and issuing solutions. Costs saw a normalisation in the second quarter, growing 4.4% overall, which, paired with a 7.3% revenue growth, culminated in an EBITDA margin expansion of 132 basis points to 52.2%. We maintain our EUR 15.8 per share fair value estimate and narrow moat rating.

Narrow-moat Nexi reported a decent third quarter. The payment services provider showed a good 7.1% revenue growth to EUR 858.9 million paired with a good cost control, which increased 1.9% despite the inflationary environment. The resulting EUR 463.1 million in EBITDA beat consensus expectations of EUR 453 million. Guidance for the full year was unchanged, and we maintain our EUR 15.80 per share fair value estimate.

Narrow-moat Nexi reported a decent third quarter. The payment services provider showed a good 7.1% revenue growth to EUR 858.9 million paired with a good cost control, which increased 1.9% despite the inflationary environment. The resulting EUR 463.1 million in EBITDA beat consensus expectations of EUR 453 million. Guidance for the full year was unchanged, and we maintain our EUR 15.80 per share fair value estimate.

Narrow-moat Nexi reported second-quarter EBITDA of EUR 395 million, slightly ahead of the EUR 383 million anticipated by the consensus of analysts polled by the payments group. Displaying Nexi’s operating leverage, EBITDA grew 20.5%, widening the EBTIDA margin to 49% from 45% a year ago. We maintain our fair value estimate of EUR 15.80 per share and believe Nexi’s shares are attractive at current levels.

Narrow-moat Nexi reported first-quarter EBITDA of EUR 307.5 million, slightly ahead of the EUR 302 million consensus estimate collected by the company itself. Although performance was in line with our expectations, we are lowering our fair value estimate to EUR 15.80 from EUR 18.00 per share previously. We had anticipated a strong rebound from easy COVID-19-related comparables to drive a slightly above 7% revenue CAGR over the next ten years. However, with the prospect of higher energy costs weighing on international travel, especially from Asia, another round of COVID lockdowns toward the fall, and Europe on the brink of a recession, we believe these assumptions will prove optimistic. Our new revenue growth assumption sits closer to 6% on an annual basis, with the lower revenue estimates partially offset by less meaningful variable cost expansion. Nevertheless, we believe Nexi’s shares are oversold and offer a respectable upside. We don’t think the industry’s structural growth drivers such as the shift from cash to card payments across Europe and the disintermediation of banks in the payments space have been altered due to the macroeconomic shocks in Europe. We see good buying opportunities across the European payment space, including Nexi.

Nexi offers merchant acquiring, card issuing, and digital banking services to its clients. Through the combination and shedding of various payment assets, Nexi has created a compelling suite of offerings that are supported by durable and structural growth drivers. With its latest two large acquisitions, Nets and SIA, Nexi has also gained a wider footprint in Europe as well as stronger processing capabilities. As such, Nexi has moved from an Italian pure-play to a fully vertically integrated European payment services provider at the top of European rank tables.

Narrow-moat Nexi reported full-year results in line with consensus estimates polled by the group itself. On a like-for-like basis, including Nets, revenue grew 10% to EUR 2,269 million, outpacing costs, which came in at EUR 1,174 million, up 8%. EBITDA grew 12% to EUR 1,095 million. These results were decent in our view and are still heavily affected by the latest coronavirus developments across Europe. We already modeled Nexi including the Nets and SIA acquisitions on a pro-forma basis and the combined entity did perform slightly ahead of our expectations. Our revenue and EBITDA growth assumptions for 2021 of 8.5% and 11.0%, were beaten comfortably by 10.0% and 13.6%, respectively. However, on a negative note, Nexi’s guidance for 2022 did disappoint. The group expects revenue to grow between 7%-9% with EBITDA climbing 13%-16%. We generally believe this guidance is a reasonable medium-term target as it aligns with our current five-year average growth assumptions in our model. However, the guidance did deflate our expectations for a stronger 2022, however. We had expected European travel should start to come back stronger this summer, bringing higher-margin volumes back to Nexi. As such, we believe positive developments regarding COVID-19 restrictions and lockdowns and higher travel activity across Europe in the summer will result in risks to the upside to Nexi’s guidance. We don’t expect a material change to our fair value estimate of EUR 18 per share. Shares look undervalued.

Narrow-moat Nexi reported third-quarter underlying revenue including Nets of EUR 598.9 million, up 10% versus the same period a year ago. EBITDA grew 15% to EUR 316.7 million on a good cost control performance through the quarter. Volumes have started to recover throughout the summer, but the current outlook across Europe suggests a tougher fourth quarter again. Management reiterated its 10% revenue and 11%-13% EBITDA growth guidance for this year. We maintain our EUR 18 per share fair value estimate. Shares are undervalued.

Nexi offers merchant acquiring, card issuing, and digital banking services to its clients. Through the combination and shedding of various payment assets, Nexi has created a compelling suite of horizontally integrated offerings that are supported by durable and structural growth drivers. With its latest two large acquisitions, Nets and SIA, Nexi has also gained a wider footprint in Europe as well as stronger processing capabilities. As such, Nexi has moved from an Italian pure-play to a fully vertically integrated European payment services provider at the top of European rank tables.

Nexi reported good second-quarter results with revenues growing 23% year-over-year as restrictions started to ease in Italy. Most important, acquiring volumes are now tracking above 2019 levels. Foreign cards, on which Nexi earns higher margins, still lag 2019 levels as tourism in Italy has not fully recovered yet. However, performance over the last couple of weeks is encouraging.

Nexi offers merchant acquiring, card issuing, and digital banking services to its clients. Through the combination and shedding of various payment assets, Nexi has created a compelling suite of horizontally integrated offerings that are supported by durable and structural growth drivers. With its latest two large acquisitions, Nets and SIA, Nexi has also gained a wider footprint in Europe as well as stronger processing capabilities. As such, Nexi has moved from an Italian pure-play to a fully vertically integrated European payment services provider at the top of European rank tables.

We maintain our fair value estimate of EUR 13.60 per share for Nexi after the payment services provider posted a decent first-quarter 2021. Revenue increased 4% to EUR 259 million despite a third wave of the coronavirus and tightened restrictions have postponed a strong recovery in card payment activity. Tourist travel to Italy has not returned meaningfully yet, keeping international card spending low. Relative to pre-COVID-19 levels of 2019, payment activity via international card schemes was 70% to 80% lower in the quarter. Nexi earns a higher margin on such transactions versus the local card scheme. Revenue in Nexi’s largest segment merchant services and solutions remained flat versus the same period last year, which is good considering the first quarter last year was only partially affected by COVID-19. Cards and digital payments’ revenue was up 7% on strong growth in the card stock of international debit. As expected, costs increased versus last year (up 7%). First, in 2020 the group operated a cost-containment plan to counteract the COVID-19 impact. But the group also saw higher personnel costs as well as some project-related costs. We don’t expect the latter to be recurring. In sum, and owed to its operating leverage, the EBITDA margin declined only marginally to 54% from 55% a year ago.

Nexi is shaping itself to become a European payment force to be reckoned with. The group offers merchant acquiring, card issuing, and ATM management services to its clients, with strong integration into the Italian banking system. Through the combination and shedding of various payment assets, Nexi has created a compelling suite of horizontally integrated offerings, which are supported by durable and structural growth drivers. The group is a geographical pure-play, which is uncommon in a scale-dominated industry such as payment services.

Narrow-moat Nexi reported full-year EBITDA of EUR 601 million up 3% from last year and exactly what we had forecast for the year. The performance was good overall, given Nexi’s high exposure to in-store card payments, which were significantly curtailed due to coronavirus lockdown measures in Italy. Additionally, Nexi typically earns higher margins on international cards, resulting in a double negative impact during COVID-19. First, the absence for most of the year of international travelers spending in Italy hit overall volumes. And second, international travelers pay with international card schemes. Italian cards did pick up some of the volumes missing from travel, although the disadvantageous mix effect on margins resulted in revenue declining within merchant services. Transaction volumes in Nexi’s largest segment declined 15% year over year, yet revenue came in only 3% lower. We assume this discrepancy in merchant services revenue is explained by strong growth in point-of-sale terminal subscriptions. On a group level, revenue declined 3% to EUR 1,044 million while operating costs were reduced by 9%, yielding positive EBITDA growth for the year. EBITDA margins, as a result, widened to 58% from 55% a year ago. We think a good portion of the costs Nexi took off in 2020 are coming back on this year. This is partly due to volume-based costs, which should return once retail spending recovers to normal levels. But Nexi has also held back spending on hiring, travel, and transformation in 2020. We expect this to return as well. EBITDA margin guidance for 2021 is stable versus 2020, while management thinks 5% to 10% revenue growth is on the cards. We maintain our fair value estimate of EUR 13.60 per share.

After entering exclusive talks over a week ago, Nexi and Nets came to an agreement to merge forces. The deal follows a similar structure to the SIA deal announced just six weeks ago. In an all-share transaction, which values Nets at roughly 20 times 2020 estimated EBITDA, Nexi will gobble up new European regions with a heavy tilt toward merchant acquiring markets primarily in the Nordics and Austria, Germany, and Switzerland. The deal makes long-term strategic sense. Not only does it solidify Nexi’s position as one of the largest European payment services providers, it also poses as an answer to Worldline’s acquisition of Ingenico this year. The European merchant acquiring and card issuing markets are country-specific, but in the the long term we expect an increasing push toward a more homogeneous payment segment. The Nets merger is targeted to close in the second quarter 2021, pending regulatory approval. We maintain our fair value estimate of EUR 13.60 per share as we assess the long-term implications of this deal. Our narrow moat and stable trend ratings are unchanged.

Nexi reported third-quarter operating profit of EUR 167 million versus EUR 156 million in the same period last year on good cost measures. We increase our fair value estimate slightly to EUR 13.6 from EUR 13.2 previously, primarily adjusted for the time value of money. Our long-term thesis that Nexi will disproportionately benefit from a shift from cash to card payments and a transition from national debit to international card schemes is unchanged. We maintain our narrow moat and stable trend ratings.