Global Blue Acquisition Will Unlock Access To $500 Billion Embedded Payment Opportunity

Key Takeaways

• Strategic acquisitions and international expansion efforts are expected to significantly accelerate revenue and earnings growth for Shift4 Payments.
  
• Innovative product offerings and unified commerce platforms are poised to drive increased revenue and enhance net margins across high-growth sectors.
  
• Heavy reliance on acquisitions, expansions, and new sectors brings execution risks and financial strain, potentially impacting margins and strategic stability.

Catalysts

Engages in the provision of software and payment processing solutions in the United States and internationally.

• The acquisition of Global Blue, a market-leading payment platform, is expected to unlock over $80 million of revenue synergies by 2027 and provide Shift4 access to a $500 billion embedded payment opportunity, expected to significantly accelerate revenue growth.
  
• Expansion into international markets, including launching services in new countries (LatAm, Australia, New Zealand) and strategic partnerships with Ant International and Tencent, is expected to contribute materially to revenue and earnings growth.
  
• The strong performance and rapid adoption of the SkyTab system in restaurants, as well as expansion in international markets like Canada, the UK, and Central Europe, is expected to positively impact future revenue growth.
  
• The establishment of the unified commerce platform, which integrates global e-commerce capabilities and is associated with high-growth sectors such as nonprofit, gaming, and crypto, is expected to drive an increase in revenue and net margins.
  
• Shift4's strategic position as a market leader in hospitality, sports, and entertainment, coupled with a strong pipeline of cross-selling opportunities worth over $1.4 trillion, is expected to enhance both revenue and earnings growth.

Shift4 Payments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shift4 Payments's revenue will grow by 21.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 7.6% in 3 years time.
• Analysts expect earnings to reach $453.8 million (and earnings per share of $4.3) by about March 2028, up from $227.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.9x on those 2028 earnings, up from 26.3x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Shift4 Payments Future Earnings Per Share Growth

Risks

• The recent acquisition of Global Blue for $2.5 billion involves significant financial leverage, increasing net leverage to 3.6x. This could strain the company's balance sheet and impact net margins if anticipated synergies and growth do not materialize as projected.
  
• There is a dependency on the success of expansions into international markets and new verticals, which present execution risks. Failure to capture these opportunities could result in lower than expected revenues.
  
• The extensive reliance on cross-selling and integration of acquisitions for future growth means there is a risk of integration challenges or failure to realize expected revenue synergies, which could negatively affect earnings.
  
• Although Shift4 is expanding into new areas such as crypto payments and unified commerce, these sectors have regulatory and competitive uncertainties that may impact revenue growth.
  
• The transition in leadership with Jared Isaacman stepping aside could introduce instability or shifts in strategic direction, potentially affecting operational efficiency and net margins.

Valuation

• The analysts have a consensus price target of $129.4 for Shift4 Payments 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 $154.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $453.8 million, and it would be trading on a PE ratio of 38.9x, assuming you use a discount rate of 7.7%.
• Given the current share price of $86.07, the analyst price target of $129.4 is 33.5% 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.