Paysafe Group |
Strong trading continues through H116 |
AGM trading update |
Software & comp services |
2 June 2016 |
Share price performance
Business description
Next events
Analysts
Paysafe Group is a research client of Edison Investment Research Limited |
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Paysafe Group’s AGM trading update confirms that business has been robust year to date, with Payment Processing and Digital Wallets showing particularly strong performance. Management expects to generate FY16 revenues and EBITDA ahead of market expectations. We have upgraded our forecasts to reflect stronger trading, resulting in EPS upgrades of 5.0% for FY16e and 7.7% for FY17e.
Year end |
Revenue ($m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/EBITDA (x) |
12/14 |
365.0 |
82.9 |
22.0 |
0.0 |
27.0 |
39.4 |
12/15** |
613.4 |
152.6 |
25.6 |
0.0 |
23.3 |
21.4 |
12/16e |
954.2 |
272.2 |
36.5 |
0.0 |
16.3 |
12.0 |
12/17e |
1,056.5 |
303.8 |
41.1 |
0.0 |
14.5 |
10.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Includes Skrill from 10 August 2015.
Strong trading year to date
Management confirmed that trading has remained strong year to date, with Payment Processing and Digital Wallets generating particularly strong growth. The company now expects to generate revenues of $950-970m in FY16 (vs consensus at $911m) driving EBITDA of $270-276m (vs consensus at $260m). The integration of Skrill is on track and the company still expects this to be substantially complete by Q316, with targeted cost synergies as per previous guidance.
Upgrades to forecasts
We have revised our forecasts to take account of the stronger trading performance. We upgrade revenues by 4.6% in FY16e to $954m and 5.9% in FY17e to $1,056m. We assume that the company reinvests a proportion of the incremental gross profit and we raise our EBITDA forecasts to $272m in FY16 and $304m in FY17, equating to margins of 28.5% and 28.8% respectively. This results in improved cash generation; we now forecast that net debt/EBITDA will fall to 1.0x by end FY16e and 0.1x by end FY17e. We note that we are at the conservative end of guidance and, should the company be able to hit the upper end of guidance, there would be upside to our forecasts.
Valuation: Cash generation supports growth strategy
The stock trades at a discount to peers on an EV/EBITDA and P/E basis for FY16e and FY17e. The recent Skrill acquisition has expanded Paysafe’s product offering and balanced out its geographical exposure, while reducing exposure to its largest merchant. In addition to those cost synergies already targeted, the enlarged group has the potential to generate additional revenue synergies in excess of our forecasts. Strong cash generation should quickly reduce the group’s net debt position, providing funds for further acquisitions as well as the potential to return cash to shareholders in the form of buybacks or dividends.
Changes to forecasts
Management noted that trading year to date has been strong, in particular from Payment Processing and Digital Wallets. While Prepaid was not referred to in the update, we have confirmed with management that Prepaid is trading as expected. The company now anticipates revenues of $950-970m for FY16, compared to consensus forecasts of $911m before the trading update. This should generate EBITDA of $270-276m, compared to consensus forecasts of $260m. The $39-59m upside to existing forecasts is expected to generate additional EBITDA of $10-16m, which equates to an EBITDA margin of 28.5%. This implies that the company is using some of the revenue upside to increase investment in the business, over and above the investment it flagged in March (ie 1) risk management and compliance and 2) geographical expansion of the paysafecard business).
We have revised our forecasts to reflect stronger revenue growth for both Payment Processing and Digital Wallets, and leave our forecasts for the Prepaid business unchanged. While management had expected that reducing the level of bad debt expense in the Skrill business would dampen volume growth, overall this has not had as much of an impact on revenue growth as we had expected. We have factored in increased operating expenses reflecting the higher level of reinvestment in the business.
Exhibit 1: Changes to forecasts
$'000 |
FY16e old |
FY16e new |
Change |
Growth |
FY17e old |
FY17e new |
Change |
Growth |
Payment Processing revenues |
428,654 |
460,052 |
7.3% |
22.7% |
472,680 |
514,371 |
8.8% |
11.8% |
Digital Wallet revenues |
265,654 |
276,620 |
4.1% |
73.8% |
285,903 |
303,326 |
6.1% |
9.7% |
Pre-paid revenues |
212,543 |
212,543 |
0.0% |
178.2% |
233,797 |
233,797 |
0.0% |
10.0% |
Total revenues |
911,851 |
954,215 |
4.6% |
55.6% |
997,380 |
1,056,495 |
5.9% |
10.7% |
Gross margin |
50.8% |
50.6% |
-0.2% |
2.3% |
50.6% |
50.4% |
-0.2% |
-0.2% |
EBITDA |
259,872 |
272,235 |
4.8% |
78.4% |
284,098 |
303,800 |
6.9% |
11.6% |
EBITDA margin |
28.5% |
28.5% |
0.0% |
3.7% |
28.5% |
28.8% |
0.3% |
0.2% |
Normalised PBT |
207,620 |
217,983 |
5.0% |
83.5% |
229,744 |
247,446 |
7.7% |
13.5% |
Normalised net income |
176,477 |
185,286 |
5.0% |
70.5% |
195,283 |
210,329 |
7.7% |
13.5% |
Normalised EPS (c) |
34.8 |
36.5 |
5.0% |
43.0% |
38.1 |
41.1 |
7.7% |
12.4% |
Reported EPS (c) |
22.5 |
24.3 |
8.1% |
1214.8% |
29.3 |
32.4 |
10.6% |
33.0% |
Net cash/(debt) |
(260,543) |
(253,369) |
-2.8% |
(53,974) |
(30,958) |
-42.6% |
Source: Edison Investment Research
Exhibit 2: Financial summary
$'000s |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
127,972 |
179,072 |
253,367 |
364,954 |
613,392 |
954,215 |
1,056,495 |
Cost of Sales |
(53,868) |
(89,648) |
(121,484) |
(187,298) |
(316,922) |
(471,246) |
(523,961) |
||
Gross Profit |
74,104 |
89,424 |
131,883 |
177,656 |
296,470 |
482,969 |
532,534 |
||
EBITDA |
|
|
18,738 |
28,275 |
53,106 |
82,946 |
152,563 |
272,235 |
303,800 |
Company EBITDA |
|
|
17,453 |
27,563 |
52,213 |
85,965 |
152,563 |
272,235 |
303,800 |
Operating Profit (before amort acq intang, SBP and except.) |
6,698 |
20,599 |
42,888 |
71,257 |
133,201 |
241,143 |
269,709 |
||
Amortisation of acquired intangibles |
(4,700) |
(4,100) |
(3,300) |
(9,200) |
(31,900) |
(48,000) |
(48,000) |
||
Exceptionals |
(25,675) |
(7,123) |
(1,368) |
7,219 |
(60,986) |
(18,000) |
0 |
||
Share-based payments |
(1,007) |
(3,931) |
(4,512) |
(8,274) |
(14,089) |
(14,000) |
(14,000) |
||
Operating Profit |
(24,684) |
5,445 |
33,708 |
61,002 |
26,226 |
161,143 |
207,709 |
||
Net Interest |
(1,540) |
(1,800) |
(995) |
(2,024) |
(14,418) |
(23,160) |
(22,262) |
||
Profit Before Tax (norm) |
|
|
5,158 |
18,799 |
41,893 |
69,233 |
118,783 |
217,983 |
247,446 |
Profit Before Tax (FRS 3) |
|
|
(26,224) |
3,645 |
32,713 |
58,978 |
11,808 |
137,983 |
185,446 |
Tax |
27 |
(2,461) |
(1,235) |
(1,303) |
(4,405) |
(20,697) |
(27,817) |
||
Profit After Tax (norm) |
5,185 |
16,338 |
40,311 |
67,703 |
108,686 |
185,286 |
210,329 |
||
Profit After Tax (FRS3) |
(26,197) |
1,184 |
31,478 |
57,675 |
7,403 |
117,286 |
157,629 |
||
Average Number of Shares Outstanding (m) |
216.8 |
221.6 |
252.2 |
277.7 |
399.8 |
481.7 |
486.9 |
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EPS - normalised (c) |
|
|
2.4 |
7.0 |
15.1 |
22.0 |
25.6 |
36.5 |
41.1 |
EPS - FRS 3 (c) |
|
|
(12.1) |
0.5 |
12.5 |
20.8 |
1.9 |
24.3 |
32.4 |
DPS (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
57.9% |
49.9% |
52.1% |
48.7% |
48.3% |
50.6% |
50.4% |
||
EBITDA Margin (%) |
14.6% |
15.8% |
21.0% |
22.7% |
24.9% |
28.5% |
28.8% |
||
Company EBITDA Margin (%) |
13.6% |
15.4% |
20.6% |
23.6% |
24.9% |
28.5% |
28.8% |
||
Operating Margin (before am and except.) (%) |
5.2% |
11.5% |
16.9% |
19.5% |
21.7% |
25.3% |
25.5% |
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BALANCE SHEET |
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Fixed Assets |
|
|
72,672 |
67,393 |
65,551 |
295,955 |
1,569,269 |
1,545,709 |
1,506,369 |
Intangible Assets |
63,337 |
58,526 |
53,231 |
284,723 |
1,548,253 |
1,519,785 |
1,477,536 |
||
Tangible Assets |
9,335 |
8,867 |
12,320 |
10,114 |
18,492 |
23,400 |
26,309 |
||
Other Fixed Assets |
0 |
0 |
0 |
1,118 |
2,524 |
2,524 |
2,524 |
||
Current Assets |
|
|
172,743 |
219,167 |
184,490 |
177,275 |
259,045 |
393,629 |
595,630 |
Cash & cash equivalents |
|
|
57,956 |
82,174 |
164,379 |
109,893 |
117,875 |
245,933 |
442,329 |
Restricted NETELLER cash |
|
|
108,925 |
123,514 |
6,198 |
8,777 |
29,070 |
29,070 |
29,070 |
Cash held as reserves & settlement assets |
|
|
0 |
0 |
0 |
38,607 |
66,341 |
66,341 |
66,341 |
Receivable from Members & Merchants |
|
|
608 |
796 |
0 |
0 |
0 |
0 |
0 |
Trade and other debtors |
|
|
5,254 |
12,683 |
13,913 |
19,998 |
45,759 |
52,286 |
57,890 |
Current Liabilities |
|
|
143,957 |
192,104 |
117,634 |
114,410 |
170,943 |
174,232 |
186,605 |
Creditors |
44,234 |
81,639 |
107,524 |
58,240 |
121,070 |
126,567 |
138,940 |
||
Payable to Members/Merchant liability |
97,741 |
110,248 |
0 |
30,591 |
16,758 |
16,758 |
16,758 |
||
Short term borrowings |
1,982 |
217 |
10,110 |
25,579 |
33,115 |
30,907 |
30,907 |
||
Long Term Liabilities |
|
|
31,340 |
9,394 |
801 |
150,498 |
582,804 |
536,789 |
490,774 |
Long term borrowings |
8,440 |
9,394 |
801 |
107,205 |
494,410 |
468,395 |
442,380 |
||
Other long term liabilities |
22,900 |
0 |
0 |
43,293 |
88,394 |
68,394 |
48,394 |
||
Net Assets |
|
|
70,118 |
85,062 |
131,606 |
208,322 |
1,074,567 |
1,228,318 |
1,424,620 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
36,319 |
31,869 |
94,542 |
42,699 |
91,654 |
253,205 |
310,569 |
Net Interest |
0 |
0 |
(158) |
(1,873) |
(8,403) |
(18,487) |
(17,590) |
||
Tax |
424 |
(932) |
(1,191) |
(1,564) |
(4,929) |
(20,697) |
(27,817) |
||
Capex |
(11,222) |
(6,467) |
(13,567) |
(11,094) |
(23,721) |
(39,581) |
(42,751) |
||
Acquisitions/disposals |
(25,833) |
(1,667) |
(5,281) |
(169,192) |
(1,102,070) |
(18,159) |
0 |
||
Financing |
(2,755) |
3,294 |
1,188 |
(4,939) |
670,173 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(3,067) |
26,097 |
75,533 |
(145,963) |
(377,296) |
156,281 |
222,411 |
||
Opening net (debt)/cash |
|
|
64,207 |
58,718 |
85,829 |
118,389* |
(22,891) |
(409,650) |
(253,369) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(2,422) |
1,014 |
(1,697) |
4,683 |
(9,463) |
0 |
0 |
||
Closing net (debt)/cash |
|
|
58,718 |
85,829 |
159,665* |
(22,891) |
(409,650)** |
(253,369) |
(30,958) |
Source: Paysafe, Edison Investment Research. Note: *Difference due to new basis for reporting cash. **Excludes financing fees of $21.6m.
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