Decent Full-Year 2020 for Nexi As International Travel Slowed

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.