PagSeguro Digital Ltd.

PAGS Details

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

FY21 Results:

• Surge in Topline: The company reported a 50.48% increase in revenue from transaction activities and other services to BRL 6.78 billion in FY21 (ended December 31, 2021), compared to BRL 4.51 billion in FY20, due to 9.4% and 56.1% growth in active merchant base and acquiring Total Payment Volume (TPV), respectively.
• Decline in bottom-line: In FY21, the company's net income decreased by 9.75% YoY to BRL 1.17 billion, up from BRL 1.29 billion in FY20.
• Surge in TPV: PAGS Consolidated TPV increased by 97.0% YoY in FY21, to BRL 456.2 billion from BRL 231.5 billion in FY20.
• Development in Active Merchants: PAGS witnessed an increase in active merchants to 7.7 million in FY21 from 7.0 million in FY20.

Key Risk:

• Depending on Third Parties: Third-party facilities, infrastructures, components, and services, such as data center facilities and cloud computing, are provided by third parties. Any failure on contractual obligation by these third-parties could harm the company’s financials.
• Supplier Concentration Risk: For critical manufacturing equipment used to create point-of-sale (POS) devices, PAGS relies on a few suppliers. Furthermore, most point-of-sale equipment is assembled and tested by a single company. As a result, any breach of contract by a vendor could cause the company's operations to be put on hold for an extended period.
  

Outlook:

Q1FY22 and FY22 Outlook (Source: Earnings Presentation Q4FY21, March 22, 2022)

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

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

PAGS's stock price has fallen 65.05% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 11.76 to USD 61.65. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 23.26.

Considering the significant correction in the stock price, strong balance sheet, robust margins, progress in active merchants, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 18.71, down 1.32% as of April 08, 2022, at 07:52 AM PDT.

Three-Year Technical Price Chart (as on April 08, 2022, at 07:52 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

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.