IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/tyro-payments" target="_blank" data-smartkarma-citation="entities:28393:1" rel="noopener">Tyro Payments (TYRO AU)</a> is a provider of payment infrastructure and services to Australian SMEs. Tyro is seeking an A$250 million IPO with most of it expected to represent a sell-down by shareholders, according to press reports. </p><div class="content-highlight"><p>At first glance, Tyro is a high-growth story underpinned by market share gains against dinosaur-like incumbents. However, the evidence to date suggests that Tyro also sits squarely in the growth-at-all-costs category. Overall, we believe that Tyro’s fundamentals are mixed, giving ammunition to both bulls and bears.</p></div>

Tyro Payments (TYRO AU) is a provider of payment infrastructure and services to Australian SMEs. Tyro is seeking an A$250 million IPO with most of it expected to represent a sell-down by shareholders, according to press reports. At first glance, Tyro is a high-growth story underpinned by market share gains against dinosaur-like incumbents. However, the evidence to date suggests that Tyro also sits squarely in the growth-at-all-costs category. Overall, we believe that Tyro’s fundamentals are mixed, giving ammunition to both bulls and bears.

Tyro Payments IPO Initiation: The Penny Drops

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>We see further scope for consensus earnings and EBITDA disappointment at <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a>
</li>
<li>In the FinTech operations, where MELI is growing and investing in payments, the competitive pressure is intense, especially but not exclusively in Brazil</li>
<li>We think this intensely competitive environment, reflected in the high sales and marketing costs, will continue to pressure returns and EBITDA margins in the coming quarters</li>
<li>Consequently, we expect further cuts to consensus EPS and EBITDA estimates in the near term, and a prospective share de-rating</li>
<li>Risks to our thesis include less than expected pressure on Merchant Discount Rates in Brazil, boosting revenue growth and a stricter control of opex</li>
</ul>


We see further scope for consensus earnings and EBITDA disappointment at MercadoLibre Inc (MELI US)

In the FinTech operations, where MELI is growing and investing in payments, the competitive pressure is intense, especially but not exclusively in Brazil
We think this intensely competitive environment, reflected in the high sales and marketing costs, will continue to pressure returns and EBITDA margins in the coming quarters
Consequently, we expect further cuts to consensus EPS and EBITDA estimates in the near term, and a prospective share de-rating
Risks to our thesis include less than expected pressure on Merchant Discount Rates in Brazil, boosting revenue growth and a stricter control of opex


MercadoLibre (MELI) - FinTech Operations Opex Pressures to Weigh on Consensus Estimates

Thematic (Sector/Industry)

<ul>
<li>We upgrade <a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> to a buy, and downgrade <a href="https://www.smartkarma.com/entities/pagseguro-digital-ltd" target="_blank" data-smartkarma-citation="entities:27939:1" rel="noopener">Pagseguro Digital Ltd (PAGS US)</a> and <a href="https://www.smartkarma.com/entities/stoneco-ltd" target="_blank" data-smartkarma-citation="entities:27564:1" rel="noopener">StoneCo Ltd (STNE US)</a> to sell</li>
<li>Cielo is starting to retain market share, and the latest Merchant Discount Rate (MDR) data offers near term relief to the incumbent acquirers, in our view</li>
<li>Valuation multiple differentials appear to be largely reflecting the growth opportunity for the challengers, and under-estimating the incumbents' ability to generate lower, but still positive, returns</li>
<li>Capital IQ consensus earnings revisions indicate that the worst of the consensus earnings cuts for Cielo may be over; management is responding with improved customer service and reallocating resources to more productive tasks</li>
<li>For PagSeguro and StoneCo we believe that the most positive earnings revisions may be in the rear view mirror at least for now, as the Brazilian payments industry is a crowded space for challengers too</li>
<li>Risks to our view include worse than expected attrition of MDRs, a stubbornly high cost base at Cielo as well as stronger than expected market share gains and cost efficiencies derived by the challengers</li>
</ul>


We upgrade Cielo SA (CIEL3 BZ) to a buy, and downgrade Pagseguro Digital Ltd (PAGS US) and StoneCo Ltd (STNE US) to sell
Cielo is starting to retain market share, and the latest Merchant Discount Rate (MDR) data offers near term relief to the incumbent acquirers, in our view
Valuation multiple differentials appear to be largely reflecting the growth opportunity for the challengers, and under-estimating the incumbents' ability to generate lower, but still positive, returns
Capital IQ consensus earnings revisions indicate that the worst of the consensus earnings cuts for Cielo may be over; management is responding with improved customer service and reallocating resources to more productive tasks
For PagSeguro and StoneCo we believe that the most positive earnings revisions may be in the rear view mirror at least for now, as the Brazilian payments industry is a crowded space for challengers too
Risks to our view include worse than expected attrition of MDRs, a stubbornly high cost base at Cielo as well as stronger than expected market share gains and cost efficiencies derived by the challengers


Brazil Payment Companies; Rotating from Growth to Value - Buy Cielo, Sell Pagseguro, StoneCo

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27954" target="_blank" data-smartkarma-citation="entities:27954:1">MercadoLibre Inc (MELI US)</a> is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise Volume (GMV) of USD12.5bn in 2018</li>
<li>We estimate that in its fintech operations, the vast majority of the value lies in the MercadoPago payments business, with its growing presence in Brazil, versus the more recently established credit business MercadoCredito</li>
<li>We estimate that our valuation of MercadoPago and MercadoCredito is in a range of USD3.6-6.8bn, equivalent to a range of 15%-28% of the market cap</li>
<li>The first challenges we see for MELI going forward is that 26% of the group’s 2018 revenues were derived from Argentina; the economy is in deep recession, and the upcoming Presidential elections in October could result in a populist and market-unfriendly outcome</li>
<li>In addition, the intensifying market share contest in the Brazilian payments industry, with incumbents increasing price competition, is likely to hit returns in MercadoPago Brasil</li>
<li>We recognize the solidity and growth potential of the MELI e-commerce operations throughout Latin America, and the payment entity's contribution to the overall group valuation; however, we are cautious on MELI shares due to valuation, and we expect the shares to de-rate going forward, especially as the negative catalysts of increased competition in Brazil payments and Argentina macro and political concerns make an impact</li>
</ul>



MercadoLibre Inc (MELI US) is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise Volume (GMV) of USD12.5bn in 2018
We estimate that in its fintech operations, the vast majority of the value lies in the MercadoPago payments business, with its growing presence in Brazil, versus the more recently established credit business MercadoCredito
We estimate that our valuation of MercadoPago and MercadoCredito is in a range of USD3.6-6.8bn, equivalent to a range of 15%-28% of the market cap
The first challenges we see for MELI going forward is that 26% of the group’s 2018 revenues were derived from Argentina; the economy is in deep recession, and the upcoming Presidential elections in October could result in a populist and market-unfriendly outcome
In addition, the intensifying market share contest in the Brazilian payments industry, with incumbents increasing price competition, is likely to hit returns in MercadoPago Brasil
We recognize the solidity and growth potential of the MELI e-commerce operations throughout Latin America, and the payment entity's contribution to the overall group valuation; however, we are cautious on MELI shares due to valuation, and we expect the shares to de-rate going forward, especially as the negative catalysts of increased competition in Brazil payments and Argentina macro and political concerns make an impact


MercadoLibre: Competitive Headwinds in Brazil Payments, Macro and Political Concerns in Argentina

Accelerating Tomorrow’s Independent Research

Boost Research

Boost Research Ltd is an appointed representative of Messels Ltd which is authorised and regulated by the FCA of the UK. 

This document is issued by Boost Research Limited solely for its clients. It may not be reproduced, redistributed or passed to any other person in whole or in part for any purpose without written consent of Boost Research. The material in this document is not intended for distribution or use outside the United Kingdom. This material is not directed at you if Boost Research is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you.

This document is provided for information purposes only and should not be regarded as an offer, solicitation, invitation, inducement or recommendation relating to the subscription, purchase or sale of any security or other financial instrument.  This document does not constitute, and should not be interpreted as, investment advice.  It is accordingly recommended that you should seek independent advice from a suitably qualified professional advisor before taking any decisions in relation to the investments detailed herein. All expressions of opinions and estimates constitute a judgement and, unless otherwise stated, are those of the author and the research department of Boost Research only, and are subject to change without notice. Boost Research is under no obligation to update the information contained herein. Whilst Boost Research has taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, Boost Research cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. This document is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to herein. No representation or warranty either expressed or implied is made, nor responsibility of any kind is accepted, by Boost Research or any of its respective directors, officers, employees or analysts either as to the accuracy or completeness of any information contained in this document nor should it be relied on as such. No liability whatsoever is accepted by Boost Research or any of its respective directors, officers, employees or analysts for any loss, whether direct or consequential, arising whether directly or indirectly as a result of the recipient acting on the content of this document, including, without limitation, lost profits arising from the use of this document or any of its contents.

This document is provided with the understanding that Boost Research is not acting in a fiduciary capacity and it is not a personal recommendation to you. Investing in securities entails risks. Past performance is not necessarily a guide to future performance. The value of and the income produced by products may fluctuate, so that an investor may get back less than he invested. Investments in the entities and/or the securities or other financial instruments referred to are not suitable for all investors and this document should not be relied upon in substitution for the exercise of independent judgment in relation to any such investment. The stated price of any securities mentioned herein will generally be the closing price at the end of any of the three business days immediately prior to the publication date on this document. This stated price is not a representation that any transaction can be effected at this price.

Boost Research and its respective analysts are remunerated for providing investment research to professional investors, corporations, other research institutions and consultancy houses. Boost Research, or its respective directors, officers, employees and clients may have or take positions in the securities or entities mentioned in this document.  Any of these circumstances could create, or be perceived as creating, conflicts of interest. Boost Research’ analysts are not censored in any way and are free to express their personal opinions. As a result, Boost Research may have issued other documents that are inconsistent with and reach different conclusions from, the information contained in this document. Those documents reflect the different assumptions, views and analytical methods of their authors. No director, officer or employee of Boost Research is on the board of directors of any company referenced herein and no one at any such referenced company is on the board of directors of Boost Research.

Messels is authorised and regulated in the United Kingdom by the Financial Conduct Authority for the provision of investment advice. Residents of the United Kingdom should seek specific professional financial and investment advice from a stockbroker, banker, solicitor, accountant or other independent professional adviser authorised pursuant to the Financial Services and Markets Act 2000. This report is intended only for investors who are 'professional clients' as defined by the FCA, and may not, therefore, be redistributed to other classes of investors.

The content of this report is covered by our Policy of Independence which may be viewed at www.messels.com.

 

Analysts’ Certification

The analysts involved in the production of this document hereby certify that the views expressed in this document accurately reflect their personal views about the securities mentioned herein. The analysts point out that they may buy, sell or already have taken positions in the securities, and related financial instruments, mentioned in this document

<ul class="">
<li>The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit cards</li>
<li>De-regulation and new entrants have brought challenges for the incumbents, especially for the largest player <a href="https://www.smartkarma.com/entities/24750" target="_blank">Cielo SA (CIEL3 BZ)</a>, with the challengers taking market share, squeezing margins and promoting better service for SME merchants in particular</li>
<li>Competitive pressures continue in the Brazil payments market, reflected in the declining merchant discount rate (MDR), lower rental rates and sale prices for POS terminals, as well as pressure on the commissions for early payment of merchant receivables; the near-term prospects for Cielo remain challenging in our view</li>
<li>Due to the ongoing headwinds, we expect Cielo to show negative earnings growth to 2021; management has announced that Cielo will defend its market share against the challengers; we see further downside risk to consensus earnings and the real risk of a greater than consensus 2019 DPS cut</li>
<li>
<a href="https://www.smartkarma.com/entities/27564" target="_blank">StoneCo Ltd (STNE US)</a>and <a href="https://www.smartkarma.com/entities/27939" target="_blank">Pagseguro Digital Ltd (PAGS US)</a> are two of the payment challengers in this de-regulated market, growing faster than the Brazilian non-cash transactions market and taking incumbents' market share; we see StoneCo to be the preferred entity to PagSeguro, based on StoneCo’s higher revenue yielding SME segment of focus and on its more attractive PEG ratio valuation</li>
</ul>


The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit cards
De-regulation and new entrants have brought challenges for the incumbents, especially for the largest player Cielo SA (CIEL3 BZ), with the challengers taking market share, squeezing margins and promoting better service for SME merchants in particular
Competitive pressures continue in the Brazil payments market, reflected in the declining merchant discount rate (MDR), lower rental rates and sale prices for POS terminals, as well as pressure on the commissions for early payment of merchant receivables; the near-term prospects for Cielo remain challenging in our view
Due to the ongoing headwinds, we expect Cielo to show negative earnings growth to 2021; management has announced that Cielo will defend its market share against the challengers; we see further downside risk to consensus earnings and the real risk of a greater than consensus 2019 DPS cut

StoneCo Ltd (STNE US)and Pagseguro Digital Ltd (PAGS US) are two of the payment challengers in this de-regulated market, growing faster than the Brazilian non-cash transactions market and taking incumbents' market share; we see StoneCo to be the preferred entity to PagSeguro, based on StoneCo’s higher revenue yielding SME segment of focus and on its more attractive PEG ratio valuation


Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers

Brazil

StoneCo Ltd. provides financial technology solutions. The Company offers end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online, and mobile channels. StoneCo serves customers in Brazil.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

StoneCo (STNE US)

Tyro Payments IPO Initiation: The Penny Drops

Tyro Payments (TYRO AU) is a provider of payment infrastructure and services to Australian SMEs. Tyro is seeking an A$250 million IPO with most of...

Arun George

MercadoLibre (MELI) - FinTech Operations Opex Pressures to Weigh on Consensus Estimates

We see further scope for consensus earnings and EBITDA disappointment at MercadoLibre Inc (MELI US) In the FinTech operations, where MELI is...

Victor Galliano

Brazil Payment Companies; Rotating from Growth to Value - Buy Cielo, Sell Pagseguro, StoneCo

We upgrade Cielo SA (CIEL3 BZ) to a buy, and downgrade Pagseguro Digital Ltd (PAGS US) and StoneCo Ltd (STNE US) to sell Cielo is starting to...

Victor Galliano

MercadoLibre: Competitive Headwinds in Brazil Payments, Macro and Political Concerns in Argentina

MercadoLibre Inc (MELI US) is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise...

Victor Galliano

Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers

The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit...

Boost Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)