Paysafe Group — Update 2 June 2016

Paysafe Group — Update 2 June 2016

Paysafe Group

Katherine Thompson

Written by

Katherine Thompson

Director

Paysafe Group

Strong trading continues through H116

AGM trading update

Software & comp services

2 June 2016

Price

410.3p

Market cap

£1,974m

$1.46: £1

Net debt ($m) at end FY15

431.3

Shares in issue

481.1m

Free float

98.7%

Code

PAYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.6

(0.3)

45.8

Rel (local)

8.1

(1.2)

61.9

52-week high/low

432.4p

219.0p

Business description

Paysafe Group is a global payment solutions specialist operating in three areas: payment processing, digital wallets and prepaid services.

Next events

H116 interims

10 August 2016

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Paysafe Group is a research client of Edison Investment Research Limited

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*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

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

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%

BALANCE SHEET

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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London, WC1V 7EE

United Kingdom

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Celyad — Update 1 June 2016

Celyad

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