PagSeguro Digital Ltd.

PAGS Details

PagSeguro Digital Ltd. (NYSE: PAGS) is a Brazilian corporation that provides micro, small, and medium-sized enterprises with financial technology solutions (SMEs). PAGS also offers cash-in and cash-out options and working capital and cash-flow management assistance.

Q3FY21 Results:

• Rise in Topline: The company had reported a 47.87% increase 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, due to 22.2% and 49.1% growth in active merchant base and acquiring Total Payment Volume (TPV), respectively.
• Spurt in TPV: PAGS Consolidated TPV increased by 85.78% YoY in Q3FY21, to BRL 125.58 billion from BRL 67.59 billion in Q3FY20.
• Increase in net income: The company’s net income increased by 22.06% year on year to BRL 321.5 million in Q3FY21, compared to BRL 263.4 million in Q3FY20.
• Progress in Active Merchants: PAGS witnessed an increase in active merchants to 7.7 million in Q3FY21 from 6.3 million in Q3FY20.
  

Key Risks:

• Depending on Third Parties: Third-party facilities, infrastructures, components, and services, such as data center facilities and cloud computing, are provided to the corporation by third parties. If these third parties fail to deliver, the company’s operations may be harmed, resulting a negative impact on the company's financials.
• Supplier Concentration Risk: For some critical manufacturing equipment required to build POS devices, PAGS relies on a small number of suppliers. Furthermore, most of its POS equipment is assembled and tested by a single company. As a result, any breach of contract by vendor may stop the company's operations for a while.

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

Source: Analysis by Kalkine Group

Stock Recommendation:

The company reported decent performance in the quarter just gone by. Also the company is carrying strong competitive advantage against its peers with industry above margin profile and debt free balance sheet. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 21.21. Considering the progress in the business model, strong top-line, current valuation, and associated risks, we recommend a "BUY" rating on the stock at the closing price of USD 17.20, as of February 08, 2022.

PAGS’ 1-Year Price chart (as on February 08, 2022). Source: REFINITIV, Analysis by Kalkine Group.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.