Shift From Cash To Digital Payments Will Reshape Future Payment Landscape

Key Takeaways

• Structural growth in digital payments and efficiency initiatives are expected to boost revenue, EBITDA margins, and cash generation.
  
• Share buybacks, debt reduction, and capital allocation strategies aim to enhance EPS and shareholder value.
  
• Nexi faces revenue growth challenges due to macroeconomic impacts, unpredictable contracts, intense competition, and risks in M&A and integration efforts.

Catalysts

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

• Nexi's revenue is expected to grow due to structural growth drivers in Merchant Services, including a shift from cash to digital payments and increased digital payments adoption among merchants in less developed digital economies. This is likely to impact revenue positively.
  
• Efficiency initiatives and cost synergies from group integration are anticipated to support EBITDA margin expansion and cash generation acceleration into the next year, which will impact net margins positively.
  
• Nexi plans to focus on customer base value growth through pricing optimization, advanced solutions, and value-added services, which are expected to enhance revenue growth and net margins.
  
• Nexi's accelerated share buyback program and debt reimbursement strategy potentially increase shareholder value by enhancing EPS and reducing leverage, impacting earnings positively.
  
• Nexi is working on capital allocation strategies, potentially including further share buybacks or dividends, which could influence future earnings and shareholder returns.

Nexi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nexi's revenue will decrease by -13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -17.5% today to 20.1% in 3 years time.
• Analysts expect earnings to reach €810.1 million (and earnings per share of €0.64) by about December 2027, up from €-1.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €572 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2027 earnings, up from -6.7x today. This future PE is lower than the current PE for the IT Diversified Financial industry at 18.2x.
• Analysts expect the number of shares outstanding to grow by 1.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.51%, as per the Simply Wall St company report.

Nexi Future Earnings Per Share Growth

Risks

• Nexi faces a softer-than-expected macro environment that affects consumer spending and market volumes, potentially impacting revenue growth.
  
• Project work and contract renegotiations, particularly with banks, might lead to less predictable revenue streams and exert pressure on net margins.
  
• Competition from global players such as Adyen and Stripe may challenge Nexi’s ability to retain market share, impacting future revenue and earnings growth.
  
• The company may experience margin pressure due to competitive pricing dynamics and scheme cost increases, particularly if market pricing optimization doesn’t offset these costs.
  
• Uncertainties in M&A opportunities, such as those with Banco BPM and integration complexities across their existing operations, can pose execution risks that impact overall earnings potential.

Valuation

• The analysts have a consensus price target of €7.76 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 €5.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €4.0 billion, earnings will come to €810.1 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 12.5%.
• Given the current share price of €5.8, the analyst's price target of €7.76 is 25.3% 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.