Paysafe Group — Update 19 January 2017

Paysafe Group — Update 19 January 2017

Paysafe Group

Katherine Thompson

Written by

Katherine Thompson

Director

Paysafe Group

Positive 2017 outlook

Trading update

Software & comp services

19 January 2017

Price

385.0p

Market cap

£1,877m

$1.22/£

Net debt ($m) at end H116

385.9

Shares in issue

487.5m

Free float

98.7%

Code

PAYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.9

(17.4)

(3.1)

Rel (local)

12.2

(20.0)

(21.5)

52-week high/low

469.2p

305.7p

Business description

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

Next events

FY16 results

7 March 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Paysafe GroupPaysafe Group is a research client of Edison Investment Research Limited

Paysafe expects to report FY16 revenues and EBITDA ahead of our forecasts and expects organic growth of at least 10% in FY17. We have upgraded our revenue and EPS forecasts to reflect the new guidance and the recently announced share buyback. Although the share buyback means that net debt will reduce more slowly than previously forecast, we estimate that the company should still have headroom for further M&A.

Year
end

Revenue ($m)

EBITDA*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

12/15

613.4

152.6

25.6

0.0

18.4

17.7

12/16e

1,000.5

300.9

41.0

0.0

11.5

9.0

12/17e

1,103.7

335.4

46.0

0.0

10.2

8.0

12/18e

1,204.8

367.7

51.6

0.0

9.1

7.3

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY16 revenues & EBITDA beat; positive FY17 outlook

Paysafe expects to report FY16 revenues of at least $1bn (compared to revenue guidance of $970-990m and consensus of $988m) and for EBITDA to reach $300m (guidance $287-293m, consensus $292m). This implies a c 30% EBITDA margin, marginally higher than our 29.6% margin forecast. In FY17, the company expects to generate low double-digit revenue growth on an organic basis, at current exchange rates. Paysafe is accelerating the development of a single technology platform, and will start to roll out modules through the course of the year.

Strong trading and share buyback drive upgrades

We have revised our revenue forecasts to reflect stronger trading in H216 and FY17. We assume that some of this upside is reinvested but, overall, EBITDA margins move slightly higher than our previous forecasts. We have also factored in the £100m share buyback. This results in EBITDA upgrades of 2.8% in FY16, 3.5% in FY17 and 2.9% in FY18. Our normalised EPS forecasts are upgraded by 4.7% in FY16, 5.6% in FY17 and 7.2% in FY18. Taking into account the buyback and the acquisition of Income Access, our net debt forecast for end FY17 increases from $31m to $169m (equivalent to net debt/EBITDA of 0.5x), moving to net cash by the end of FY18.

Valuation: Steady progress to reduce the discount

The share price has recovered and is now trading at a higher level than prior to the recent short seller’s report. Post our estimate upgrades, Paysafe continues to trade at a significant discount to peers: the company is trading at a c 30% discount on an FY17e EV/EBITDA basis and a more than 40% discount on an FY17e P/E basis. While some discount is warranted to reflect the potential risk within the Asia Gateway business, in our view this discount is excessive. Continued revenue growth, steady cash generation and a gradual reduction in the relative contribution of the company’s largest merchant should help reduce this discount.

Financial summary

Exhibit 1: Financial summary

$000s

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

364,954

613,392

1,000,457

1,103,667

1,204,756

Cost of Sales

(187,298)

(316,922)

(469,140)

(531,043)

(586,279)

Gross Profit

177,656

296,470

531,316

572,623

618,477

EBITDA

 

 

82,946

152,563

300,902

335,428

367,651

Company EBITDA

 

 

85,965

152,563

300,902

335,428

367,651

Operating Profit (before amort acq intang, SBP and except.)

71,257

133,201

270,810

302,037

329,759

Amortisation of acquired intangibles

(9,200)

(31,900)

(51,500)

(52,000)

(52,000)

Exceptionals

7,219

(60,986)

(11,369)

0

0

Share-based payments

(8,274)

(14,089)

(14,000)

(14,000)

(14,000)

Operating Profit

61,002

26,226

193,941

236,037

263,759

Net Interest

(2,024)

(14,418)

(29,199)

(28,520)

(27,924)

Profit Before Tax (norm)

 

 

69,233

118,783

241,611

273,516

301,836

Profit Before Tax (FRS 3)

 

 

58,978

11,808

164,742

207,516

235,836

Tax

(1,303)

(4,405)

(24,711)

(31,127)

(35,375)

Profit After Tax (norm)

67,703

108,686

207,785

232,489

256,560

Profit After Tax (FRS3)

57,675

7,403

140,031

176,389

200,460

Average Number of Shares Outstanding (m)

277.7

399.8

481.7

480.2

472.3

EPS - normalised (c)

 

 

22.0

25.6

41.0

46.0

51.6

EPS - FRS 3 (c)

 

 

20.8

1.9

29.1

36.7

42.4

DPS (c)

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

48.7%

48.3%

53.1%

51.9%

51.3%

EBITDA Margin (%)

22.7%

24.9%

30.1%

30.4%

30.5%

Company EBITDA Margin (%)

23.6%

24.9%

30.1%

30.4%

30.5%

Operating Margin (before am and except.) (%)

19.5%

21.7%

27.1%

27.4%

27.4%

BALANCE SHEET

Fixed Assets

 

 

295,955

1,569,269

1,593,147

1,566,902

1,541,201

Intangible Assets

284,723

1,548,253

1,563,223

1,529,869

1,499,060

Tangible Assets

10,114

18,492

27,400

34,509

39,617

Other Fixed Assets

1,118

2,524

2,524

2,524

2,524

Current Assets

 

 

177,275

259,045

386,749

460,985

683,381

Cash & cash equivalents

 

 

109,893

117,875

236,519

305,099

521,956

Restricted NETELLER cash

 

 

8,777

29,070

29,070

29,070

29,070

Cash held as reserves & settlement assets

 

 

38,607

66,341

66,341

66,341

66,341

Receivable from Members & Merchants

 

 

0

0

0

0

0

Trade and other debtors

 

 

19,998

45,759

54,820

60,475

66,014

Current Liabilities

 

 

114,410

170,943

180,505

189,364

197,978

Creditors

58,240

121,070

132,667

141,526

150,140

Payable to Members/Merchant liability

30,591

16,758

16,758

16,758

16,758

Short term borrowings

25,579

33,115

31,080

31,080

31,080

Long Term Liabilities

 

 

150,498

582,804

544,224

498,544

452,864

Long term borrowings

107,205

494,410

468,730

443,050

417,370

Other long term liabilities

43,293

88,394

75,494

55,494

35,494

Net Assets

 

 

208,322

1,074,567

1,255,167

1,339,979

1,573,740

CASH FLOW

Operating Cash Flow

 

 

42,699

91,654

292,069

335,582

367,676

Net Interest

(1,873)

(8,403)

(23,799)

(23,120)

(22,524)

Tax

(1,564)

(4,929)

(24,711)

(31,127)

(35,375)

Capex

(11,094)

(23,721)

(55,019)

(59,147)

(64,190)

Acquisitions/disposals

(169,192)

(1,102,070)

(39,787)

(6,100)

(3,050)

Financing

(4,939)

670,173

(2,394)

(121,827)

0

Dividends

0

0

0

0

0

Net Cash Flow

(145,963)

(377,296)

146,359

94,261

242,537

Opening net (debt)/cash

 

 

118,389

(22,891)

(409,650)

(263,291)

(169,031)

HP finance leases initiated

0

0

0

0

0

Other

4,683

(9,463)

0

0

0

Closing net (debt)/cash

 

 

(22,891)

(409,650)

(263,291)

(169,031)

73,506

Source: Paysafe Group accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paysafe Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paysafe Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Research: Consumer

Treatt — Update 18 January 2017

Treatt

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