Worldline, Nexi & Adyen FY23 Preview: Anything but Rosy?
The European payment sector seems to have experienced a further weakening in the Q4, as evidenced by data from October/November. Industry discussions suggest a decrease in investor expectations, and a consensus adjustment.
For Worldline, we foresee the continuation of the Q3 trend, with additional pressure from the competition and merchant de-risking. Adyen is now considered fairly priced, with investors seeking consolidation after the Q3 rebound, while Nexi is expected to come in towards the low end of the guidance
For Worldline, we foresee the continuation of the Q3 trend, with additional pressure from the competition and merchant de-risking. Adyen is now considered fairly priced, with investors seeking consolidation after the Q3 rebound, while Nexi is expected to come in towards the low end of the guidance
Fact
As we approach the FY23 results, the retail sales data for October and November, coupled with insights from industry readings and investor relations discussions, suggest that December, including the Christmas period, experienced a relatively soft performance. Notably, there was a rebound in October, but November experienced weakness, primarily driven by softness in Germany.
Eurostat retail spending data confirms that nominal growth has remained <3.5% yoy, primarily attributed to inflation decelerating and shifting from a tailwind to a headwind. Inflation (HICP) rates for Oct/Nov/Dec stood at 3.6%/3.1%/3.4% in the EU, respectively, and 2.9%/2.4%/2.9% in the Eurozone.
Examining the specific industry verticals, the downward trend in automotive fuel persists, largely attributed to the lower oil prices vs. 2022. Worldline appears to be more exposed to this at c.10% of MS revenue, whereas Nexi’s exposure should be in the mid-single digits.
In the non-food sector, there was a rebound noted in October, although it remained relatively soft, further deteriorating in November.
Analysis
Worldline downgrade
Worldline stock price performance
We are downgrading Worldline based on our assessment that, after the recovery from the post-Q3 2024 lows, the stock now offers less upside potential. Additionally, we expect FY24 to be a transitional year marked by the implementation of Worldline’s new restructuring plan, Power24, incurring c.€250m in costs.
Wordline recently announced that Crédit Agricole had become one of its largest shareholders, holding a 7% minority stake. We speculate that this move is aimed at reinforcing the ownership structure and guarding against potential hostile takeovers.
Adding complexity to the competitive landscape, a new player has entered the German market in the form of a JV between Commerzbank and Global Payments. However, note that this same entity (Commerzbank) has recently signed a new partnership with Worldline’s FS division, providing support to Worldline in sustaining its relatively slower-growing segment for FY24-25.
All our indicators suggest that Worldline’s Q4 performance was fairly weak. In the Q3 release, the management surprised the market by introducing a new restructuring plan, in addition to the increased regulatory demands by BaFin, the German regulator, regarding fraud risk in certain online merchants.
Beyond the regulatory impact, we foresee the company revealing a soft quarter, as evidenced by the retail spending trends in regions where Worldline has significant exposure, such as Germany (23%), Switzerland (16%) and Benelux (18%).
Reiterating our assessment, we are cautious about the consensus estimates, which we see as overly optimistic, especially as some peers may not be fully accounting for the impact of merchant de-risking.
MS is expected to be significantly impacted by the de-risking progress, resulting in a growth rate of only +3.5% yoy. Without the de-risking impact (-3.6%), MS growth would have reached +7.1%. Consequently, the overall revenue growth is projected to be a modest 1.5%, compared to the potential 4.1% without factoring in the de-risking impact.
The outlook for the two other smaller divisions remains challenging, contributing to the overall deterioration in Worldline’s growth profile. However, there is a glimmer of hope as the company has flagged the possibility of a rebound in the FS division.
Given the profit warning in Q3, the focus will undoubtedly be on margins in the upcoming financial reports. We currently align with the consensus on the OMDA margin and the absolute figure, while there remains uncertainty surrounding scheme fees.
Nexi is solid but the outlook remains soft
Nexi stock price performance
In Germany, Nexi did not experience a significant slowdown in Q3, and we anticipate this trend to continue into the Q4, contrasting with the performance of other players like Worldline. This resilience can be attributed to Nexi’s “challenger” position in the German market, enabling it to gain market share without being fully indicative of the overall economic conditions. Additionally, Nexi is relatively insulated from the merchant de-risking measures imposed by BaFin (the German regulator). The company has also frequently been the subject of rumours, as discussed in our previous note Nexi navigates payments stormy waters_, which we believe have contributed to underpinning Nexi’s stock price compared to others in the sector.
From the retail spending data, a positive rebound has been observed in the Nordics, signalling a recovery in consumer activity. Italy, on the other hand, has remained relatively consistent, showing stability in line with the previous quarter. In Poland, there are indications of inflation decelerating, which may impact spending trends. For more detailed information on Germany, please refer to the Worldline section.
Despite not explicitly addressing Nexi, the outlook appears challenging for all payment companies. Although we are witnessing favourable margin expansion, achieving the ambitious medium-term revenue growth target of 9% for Nexi seems increasingly unlikely. While the company has refrained from discussing this target of late, there has been no formal statement indicating its abandonment.
Adyen: confidence regained, confirmation is needed
Adyen stock price performance
Adyen has posted a strong performance, surging by c.70% since the Q3 trading update and the CMD in November. While we acknowledge Adyen’s outstanding fundamentals, positioning it as the best-in-class for efficiency and flexibility, we believe that the current high multiples (59x P/E FY23) limit its potential for significant upside, making a re-rating less likely.
Prior to the CMD, we contested the consensus views, considering them overly pessimistic, and now we seek confirmation that digital volumes are indeed rebounding in the North American region. Despite a potential weakening in the outlook, Adyen’s lowest cost ownership is expected to catalyse a comeback.
With low visibility on platform volumes, we adopt a conservative approach. Our major deviation from the consensus lies in our optimism concerning the EBITDA margin.
However, we anticipate an improvement in H2 23 versus H1 23 (43.3%) and a further improvement in 2024. We believe that the company will eventually take a more conservative approach to hiring.
Impact
We have revised our recommendation for Worldline. Meanwhile, we are maintaining our rating for Nexi, recognizing its resilience and strong performance on synergy creation despite the challenging market conditions. Lastly, we are cautious on any potential re-rating for Adyen due to its high valuation and the current lower upside potential.
Our estimates and the entire research is available on request. Please contact us here https://www.alphavalue.com/#npb
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