Vtrade Proposes PagSeguro Digital Ltd (NYSE: PAGS) For Long Term Investment

PagSeguro Digital Ltd (NYSE: PAGS)

COMPANY PROFILE

Founded In – 2006 | Current Market-Cap – USD 9.97B

PagSeguro Digital Ltd is a provider of financial technology solution company. The Company is focused primarily on micro-merchants, small companies and medium-sized companies in Brazil.

The Company offers multiple digital payment solutions, free digital accounts, and withdrawing account balances. Its end-to-end digital ecosystem enables its customers accept payments and manage their businesses.

It offers safe, affordable, simple, mobile-first solutions for merchants to accept payments and manage their cash through their PagSeguro digital accounts, without the need for a bank account.

Its digital account offers more than 30 cash-in methods and six cash-out options including its PagSeguro prepaid card, all using proprietary technology platform and backed by the trusted PagSeguro and UOL brands.

Its digital ecosystem also features other digital financial services, business management tools and functionalities for its clients.

Company launched its IPO in the NYSE on 24^th Jan 2018.

Stock performance since IPO:

IPO Date	24-Jan-2018
IPO Value	4.7B
IPO Range	17.50 - $50.50
IPO Debut Price	28.20
High Made (29-Mar-2018)	39.97
Low Made (02-Aug-2018)	24.57
Last Trading Close (22-Oct-2018)	31.74

PAGS seems to be a good Long-Term Investment Stock for following reasons:

·       PAGS is the biggest payment processing company in Brazil. It derives its revenue from three sources: Payment processing (48% of revenue): PAGS charges on average 3.2% fee on the total payment volume. It is a high-margin segment. Sale of POS (19% of revenue): PAGS sells POS with a loss but later makes profit on payment processing. Factoring (32% of revenue): PAGS offers merchants early repayment of their receivables and charges them 42% p.a. It is a huge margins segment.

·       PAGS is growing primarily through addressing smaller merchants in Brazil that previously could not use traditional acquirers like Redecard and Cielo, due to their prohibitively high costs. Due to PAGS's relatively low market share and their focus on expanding the market to smaller merchants, PAGS grew revenues over 120% in CY17 and 89% year over year in Q118. Their largest competitor Cielo saw their revenues shrink by about 1% Y/Y in the same quarter.

·       PAGS also has a potentially attractive platform for incremental growth opportunities, such as small business lending. While overall GDP growth in Brazil has been relatively weak recently, PAGS is nonetheless a very attractive play on the growth in digital payments in South America's largest economy.

·       PAGS can charge 42% p.a. on early receivable repayments because, in Brazil, the cost for overdraft credit is 331% p.a. PAGS has very little credit risk because its counter party is not the merchant but the big Brazilian banks.

·       PAGS has historically targeted micro and SME businesses because this segment was under-served in Brazil. Banks and card processing companies concentrated on enterprise customers. The micro merchants did not even accept card payment prior to signing up with PAGS. At the year-end, PAGS had 2.7M active merchants out of 11M SMEs.

·       PAGS operates in a big market where it can grow just by gaining market share. Last year, total payment volume (TPV) in Brazil was R$5.1 trillion. The SME TPV was R$1.8 trillion, as PAGS had just 2.1% of SME TPV and 0.75% of total TPV, in future it has a great room for growth.

EARNINGS & YEAR-ON-YEAR PERFORMANCE

In 2018 - Q2 EPS of R$0.79 beats the consensus estimate by R$0.06 and Revenue of R$974.5M beats the consensus by R$68.84M.

R$16.9 billion in total payment volume (TPV), up 106.8% compared with 2Q17. Active merchants in the last 12 months at close of period of 3.5 million, up 68.7% compared with 2Q17, with growth of 1.4 million net new merchants;

R$1,001.8 million in total net revenue up 79.8% compared to 2Q17, or 74.9% after NonGAAP adjustments to 2Q18. R$974.5 million in Non-GAAP total net revenue in 2Q18. R$227.6 million in net income, up 176.8% compared with 2Q17, or 194.5% after NonGAAP adjustments to 2Q18.

R$242.1 million in Non-GAAP net income in 2Q18. Net Margin of 22.7%, up 7.9 percentage points compared with 2Q17 or up 10.0 percentage points after Non-GAAP adjustments to 2Q18. Non-GAAP Net Margin of 24.8% in 2Q18.

Disclaimer:

Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.