Executing Integrated Payment Strategy Will Expand Presence In Key Markets

Key Takeaways

• Nexi's integrated payment strategy for SMEs and new sales channels is expected to boost revenue and net margins.
  
• Gen AI efficiencies and strategic capital allocation could enhance EBITDA margins and earnings per share.
  
• Concentrated events, competitive pressures, and macroeconomic challenges could impede Nexi’s revenue growth and market share, particularly in Merchant Services and the Nordics.

Catalysts

Provides electronic money and payment services to banks, small and medium-sized enterprises, large international companies, institutions, and public administrations in Italy.

• Nexi is focusing on executing their integrated payment strategy, especially for SMEs, with a significant presence in multiple key markets. This strategy is expected to drive future revenue growth.
  
• The company has been developing new sales channels, which have increased significantly in their contribution to total new sales. This is anticipated to have a positive impact on both revenue and net margins.
  
• Nexi is leveraging opportunities provided by Gen AI to improve efficiencies across IT operations, which could enhance EBITDA margins by reducing operating expenses.
  
• There is a strategic focus on capital allocation and returning value to shareholders through dividends and share buybacks. This is expected to drive earnings per share growth.
  
• With a strong growth in excess cash generation and a commitment to further debt reduction, Nexi is improving its financial fundamentals, potentially leading to better net margins and profitability.

Nexi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nexi's revenue will decrease by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 18.7% in 3 years time.
• Analysts expect earnings to reach €752.5 million (and earnings per share of €0.64) by about April 2028, up from €186.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €991.5 million in earnings, and the most bearish expecting €529.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, down from 32.3x today. This future PE is greater than the current PE for the IT Diversified Financial industry at 7.8x.
• Analysts expect the number of shares outstanding to decline by 6.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.01%, as per the Simply Wall St company report.

Nexi Future Earnings Per Share Growth

Risks

• The concentration of extraordinary events in 2025, such as Italian bank M&A and contract terminations across Europe, could weigh heavily on revenue growth, particularly in Merchant Services and Issuing Solutions.
  
• The macroeconomic environment in the Nordics remains challenging, with aspects such as weaker macro conditions and scheme-related fee pressures potentially affecting revenue and profit margins.
  
• Despite successes in some regions, the company's growth in key markets like Italy and the Nordics could be negatively impacted by competitive pressures, which may result in reduced revenue growth and market share erosion.
  
• Phasing effects and delays in client migrations, particularly in the Nordics, may impact the timing and realization of anticipated revenue, affecting short-term earnings.
  
• The focus on returning excess cash to shareholders may limit the company’s financial flexibility for larger M&A activities or investments needed to sustain long-term revenue and profit growth.

Valuation

• The analysts have a consensus price target of €6.904 for Nexi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €10.4, and the most bearish reporting a price target of just €4.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.0 billion, earnings will come to €752.5 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 13.0%.
• Given the current share price of €4.91, the analyst price target of €6.9 is 28.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.