Merchant Services Remains Core Driver for Worldline; Shares Cheap

Narrow-moat Worldline WLN closed an overall good 2022. Organic revenue growth of 10.7% beat the company’s 8%-10% guidance on a strong showing in merchant services. This segment remains the core focus for Worldline, driving the majority of organic and inorganic revenue growth. Management highlighted a further appetite for transactions in Europe, which we believe is the right strategy in the still highly fragmented European payment space. Lower equity valuations in the payment space as well as a derisked balance sheet after the terminal business disposal should position Worldline well to create shareholder value. We maintain our EUR 91 fair value estimate and view the shares as cheap.

Volume growth in the merchant services segment was good in 2022. In-store and online volume processed by Worldline acquiring climbed 21% and 27%, respectively. Importantly, early data from 2023 suggests a strong start to the year as well. We don’t see concerns about lower discretionary spending and slowing economic activity potentially hurting Worldline’s volume reflected in the data presented to us. For now, merchant services is showing a more robust performance than we believe the market had anticipated.

For 2023, Worldline anticipates 8%-10% organic revenue growth and a further 100 basis points of adjusted EBITDA margin improvement.