Worldline: Organic Revenue Growth Remains Strong; Shares Cheap

Narrow-moat Worldline WLN posted a good first-quarter revenue release. On an organic basis, revenue grew 9.2% to EUR 1,070 million. The growth driver remained merchant services (up 12.6%), Worldline’s largest segment (71% of first-quarter revenue). Commercial acquiring stood out in the quarter with 13% volume growth, split into 11% growth in in-store and 19% in e-commerce.

Guidance for 2023 and 2024, which we believe is achievable, suggests the shares are trading at 5.3% and 7.1% forward free cash flow yields, respectively. In combination with a high-single-digit top-line growth outlook supported by structural growth drivers such as the continued shift from cash to card payments in Europe, we view the shares as cheap. We anticipate calls for share buybacks to increase in frequency over the coming quarters as a potential way to unlock shareholder value. Management has flagged that it wants to retain cash for potential deals in the consolidating European payments space, however. We maintain our EUR 91 fair value estimate.

Worldline announced a strategic partnership with Credit Agricole for the French payments market, which we view as very favorable to Worldline. The payment-services provider will enter a joint venture with the French bank providing its payment infrastructure for a 50% plus 1 share ownership. In return, Credit Agricole will promote Worldline’s payment solutions via its vast distribution network to its small- and medium-size business clients. Additionally, Worldline gains a direct license with Cartes Bancaires, the dominant payment scheme in France. The economics of this deal are still fairly rough around the edges, however. Worldline and Credit Agricole are expected to give a first EUR 40 million injection each to get the joint venture off the ground, and first revenue is expected to be consolidated on Worldline’s income statement in early 2025. Management believes the new entity can contribute about EUR 300 million-EUR 400 million in revenue by 2029.