PagSeguro Digital Ltd.

PAGS Details

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

Latest News:

• Key Appointment: PAGS Board of Directors appointed Chief Operating Officer Alexandre Magnani as co-Chief Executive Officer (co-CEO) of the company on January 10, 2022, reporting to the newly formed Executive Committee of PAGS Board of Directors.

Q3FY21 Results:

• Surge in Topline: The company 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.
• Growth in bottom-line: In Q3FY21, the company's net income increased by 22.06% YoY to BRL 321.5 million, up from BRL 263.4 million in Q3FY20.
• Surge in TPV: PAGS Consolidated TPV increased by 85.78% YoY in Q3FY21, to BRL 125.58 billion from BRL 67.59 billion in Q3FY20.
• Development in Active Merchants: PAGS witnessed an increase in active merchants to 7.7 million in Q3FY21 from 6.3 million in Q3FY20.

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. If these third parties fail to deliver, the company's operations may be jeopardized, resulting in significant financial consequences.
• Supplier Concentration Risk: PAGS relies on a few suppliers for critical manufacturing equipment used to create point-of-sale (POS) devices. Furthermore, most POS equipment is assembled and tested by a single manufacturer. As a result, any vendor breach of contract could put the company's operations on hold for an extended period.

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 NTM 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 73.39% 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 17.11.

Considering the significant correction in the stock price, solid balance sheet, solid 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 14.235, down 1.76% as of March 17, 2022, at 10:12 AM ET.

Three-Year Technical Price Chart (as on March 17, 2022, at 10:12 AM ET). 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.

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