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Consider Investing in This NYSE-Listed IT Major – PAGS

Nov 12, 2021 | Team Kalkine
Consider Investing in This NYSE-Listed IT Major – PAGS


PagSeguro Digital Ltd.

PAGS Details

PagSeguro Digital Ltd. (NYSE: PAGS) offers financial technology solutions primarily to micro-merchants, small companies, and medium-sized enterprises in Brazil. It provides multiple digital payment solutions, In-person payments via Point of Sale (POS) devices, free digital accounts, and withdrawing account balances. In addition, PAGS' digital ecosystem also features a variety of digital financial services, business management tools and functionalities for its customers.

Latest News:

  • Key Management Changes: On October 08, 2021, PAGS announced the appointment of Mr Alexandre Magnani as its Chief Operating Officer (COO). Before he was appointed COO, he served as the Director of Sales and International Financial Services with the company since January 2015.
  • Acquisition of Concil: On August 17, 2021, PAGS announced the acquisition of Concil, a Brazilian fintech company operating in the reconciliation segment, having a Total Payment Volume (TPV) of over BRL 3 billion per month. This transaction strengthens its technological position while also providing comprehensive solutions to help Brazilian entrepreneurs of all sizes achieve greater success in their operations.

Q3FY21 Results:

  • Surge in Topline: The company reported an increase of 47.87% in revenue from transaction activities and other services to BRL 1.79 billion in Q3FY21 (ended September 30, 2021) compared to BRL 1.21 billion in Q3FY20, attributable to 22.2% and 49.1% growth in active merchant base and acquiring Total Payment Volume (TPV), respectively.
  • Sharp Uptick in Consolidated TPV: PAGS Consolidated TPV witnessed a YoY growth of 85.78% to BRL 125.58 billion in Q3FY21 from BRL 67.59 billion in Q3FY20.
  • Growth in Profitability: Net income for Q3FY21 grew 22.06% YoY and stood at BRL 321.55 million compared to BRL 263.43 million in Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company had cash and cash equivalents (including short-term investments) of BRL 2.12 billion and no outstanding debt.

Key Risks:

  • Competition Risk: PAGS faces direct competition from PayPal and MercadoPago in online digital payment markets and SumUp/Payleven in the POS payments market. Should this competition further intensify, it could adversely impact the company's financial and operational performance.
  • Supplier Concentration Risk: PAGS is dependent on a limited number of suppliers for some of its key manufacturing equipment required for the production of POS devices. Also, it relies on a single manufacturer to assemble and test the majority of its POS devices. Therefore, any failure on the contractual obligation by vendors could harm its operations.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PAGS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

PAGS' stock price has declined 42.91% in the past nine months and is currently leaning towards the lower band of its 52-week range of USD 31.10 to USD 62.83. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 39.99. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 42.21.

Considering the slight correction in the stock price in the past nine months, strategic acquisition, strong top-line performance, a surge in TPV, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 35.29, up 3.70% as of November 12, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.