Long Term Investment Opportunity in this Financial Technology Company (NYSE: PAGS)
PagSeguro Digital Ltd (NYSE: PAGS) is a Brazilian-based company which acts as a provider of financial technology solutions focused primarily on Micro-Merchants, Small Companies and Medium-Sized Companies (SMEs), in Brazil. The company provides a range of solutions and tools such as cash-in and cash-out options and provides access to working capital and to help to manage their cash flow. It delivers end-to-end digital ecosystem to address day to day financial needs, including receiving and spending funds and managing and growing businesses to clients. The company also offers the Free PagSeguro Digital Account delivering Cash-In Solutions, Online and In-Person Payment Tools, Online Payment Tools; and Web Check Outs offer tokenization, handling of shipping information and others.
Highlights:
Increased Market Shares: The company’s banking unit added an average of 24k new accounts per workday last year driving the total payments volume to nearly double from 2020. PagSeguro reported its Q4 results highlighted by strong growth from its digital banking platform. The company has gained market share among total payments volume in the Brazilian financial system.
NEW IPO: The firm filed for an initial public offering on the Hong Kong Stock Exchange last week with Goldman Sachs Group and Morgan Stanley as joint sponsors of the share sale and UBS as financial adviser, PAG is expected to seek as much as $2 Billion from the listing. Approximately 75 percent of capital raised in the IPO will be used to seed new strategies, according to the prospectus. The remaining 25 percent will help build the firm’s infrastructure across technology, research and development, and ESG initiatives. PAG has not yet identified any specific target of potential merger or acquisition.
Strong Q4 & FY2021 Numbers
- The company reported its Q4 earnings on March 22nd with non-GAAP EPS of BRL 1.28, representing approximately $0.26 at a current exchange rate of BRL 5 per USD.
- Revenue of BRL 3.2 billion, or ~$640 million, climbed 55.0% year over year. The adjusted EBITDA at BRL 751 million increased by 3.4% y/y reflecting a softer margin
FY2021 OPERATING METRICS
- Consolidated TPV1 of R$456 billion, +97% y/y.
- Acquiring TPV2 of R$252 billion, +56% y/y. Ex-Corona voucher +60% y/y
- 13.1 million PagBank Active Users, +5.2 million y/y
Expected VS Reported Eps for FY2021 & FY2022
Quick Look at company’s Key Numbers
Regional risks
Policy changes and regulatory reform by governments in Asia-Pacific and globally may create regulatory uncertainty for the firm’s strategies and investments and affect future returns, PAG noted in the document. Additional risks in the region include fluctuations in currency exchange rates, higher rates of inflation, higher transaction costs and political hostility to investments by foreign or alternative asset investors.
Stock Recommendation:
While shares have been highly volatile amid the market selloff, we are bullish on PAGS which is supported by solid fundamentals and a positive long-term outlook. The company is profitable and a good way to capture exposure to the high-growth opportunity of digital financial services in the Brazilian economy.
MarketFacts gives a “Buy” rating on the stock at the closing Price of $20.31 as of March 29th, 2022.
| CMP (USD) (29th March 2022) | $20.31 |
| Target Price (USD) | $35.00 |
| Recommendation | Buy |
