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Analysts Still Think Wirecard has Upside



Wirecard (OTC:WCAGY) (OTC:WRCDF) (FRA:WDI.F) just preannounced strong preliminary Q1 2017 results. Revenues are expected to be EUR 274.8 million versus last year’s EUR 210.5 million, showing growth of 30.5% Also announced was preliminary EBITDA of EUR 81.6 million, increasing 32% from a year ago, and accelerating over the Q4 growth of 27%. It reaffirmed its guidance for the 2017 year to yield EBITDA of between EUR 382 million and EUR 400 million. As the company continues to show progress toward that goal, we expect the stock price to move closer to the average of valuations put out by sell side firms who range from price targets of EUR 45 to 70 with an average of 58. The stock now trades at EUR 55. 

Wirecard is a European merchant processor with reach spreading throughout the globe. It combines payment cards and wireless technology and benefits as the world moves to a cashless society and e-commerce takes more of retail’s market share. Wirecard’s Multi-Channel Payment Gateway connects with more than 200 international payment networks and provides risk and fraud management and facilitates mobile payments. 

If we look at Wirecard’s competitors we see the stock is fairly valued but still has upside potential based on its 2017 EBITDA guidance. If we take a group of comparables which include Cielo (OTC:CIOXY), Earthport (LSE:EPO.L), EVERTEC (NYSE:EVTC), First Data (NYSE:FDC), Global Payments (NYSE:GPN), JetPay (NASDAQ:JTPY), PayPal (NASDAQ:PYPL), Qiwi (NASDAQ:QIWI), Total System Services (NYSE:TSS), and Vantiv (NYSE:VNTV.) we can see that they trades at an average of 15.7 times enterprise value to last twelve months’ EBITDA. If we apply that average (adjusted for outliers) to the guidance the company gave of 2017 EBITDA of EUR 382 to EUR 400, we see future upside. The midpoint gives us an EBITDA of EUR 391. Using the 15.7 EV/EBITDA average multiple, the company could be worth EUR 6.14 billion enterprise value. Converting that to market value is EUR 7.25 billion or EUR 58.70 per share. Certainly with growth at over 30% the market should value the company at more than the industry average.


There are a variety of opinions and methodologies that investment firms are using to value Wirecard. These companies are basis the valuations on either a multiple of future EBITDA or PE.  Here is a summary of their thinking:
Equita increased its target to €60 (from €55) given strong new client win and DCF rollover. At the target, the shares would trade at 2018E P/E adjusted ex cash of 20x with 2016-19E EPS CAGR of 25%. Its price target is EUR 60.

Bank of America (NYSE:BAC) raised its DCF-based price target to €60 (FY18e EV/EBITDA of 15x). It notes Wirecard reported a good set of results for FY16, with EBITDA coming in at €307.4m, up 27% YoY on an organic basis and in line with preannouncement. Management maintained its guidance for 2017 EBITDA to come in in the range of €382-400m. Mid-point of guidance (€391m) implies a strong 27% YoY growth. Further, depending on the exact closing dates for the acquisition of Citi’s acquiring business in APAC, there may potentially be further upside to its guidance. Based on its new estimates, Wirecard currently trades on FY18e EV/EBITDA of 13x, towards the low end of its historical 3-year forward EV/EBITDA range of 12-21x. Its price target it also EUR 60.  

Baader’s target price is EUR 70. Wirecard’s 1Y forward EV/sales multiple is currently around 3.6x and therefore still below its target EV/Sales multiple of 5.4x. The company’s 1Y forward EV/EBITDA multiple is currently around 13.7x and below its target EV/EBITDA multiple of 19.2x.  

Commerzbank’s price target is 65 and is derived from cash/ PPA-adjusted P/E of 19.1x and 16.1x for 2017E and 2018E in view of 27% expected clean EPS CAGR 2016-19E. The shares’ P/E of 16.3x 2018E, adjusted for PPA and cash per share, does not discount forecast 30% EPS CAGR over 2016-19E. Its fair value is based on a DCF. 

Barclays’ price target is EUR 58. It sees Wirecard as well positioned in terms of acquiring framework with long-term growth potential via its emerging market acquisitions. Its price target equates to 20x its FY18E EPS. 

Berenberg considers Wirecard its our top pick as it: “1) expects 2017 to be another strong year as cross-border global e-commerce growth remains very healthy 2) there is no sign of price war between payment service providers; and 3) Wirecard stops acquiring and shows the full financial potential of its business model with improving cash conversion and ROCE.” 
Its valuation is based on 24x adjusted earnings plus net financial position and its target price is EUR 58.
Keefe Bruette has a price target to of EUR 62, which represents a 22x multiple on its 2018 EPS estimate. 

Citi (NYSE:C) has a price target of EUR 54 based on a target multiple of 17.5x estimated 2019 EPS, which is the stock’s recent average multiple. 

Morgan Stanley (NYSE:MS)bases its valuation on DCF and has the lowest price target at EUR 45. It believes organic revenue growth should be 20% over 2015-18e, driven by similar organic growth in transaction volumes, and flat trajectory in net revenue take at approximately 80bps of transaction value. This would outperform the market on transaction volumes, as Wirecard's focuses on faster growing industry segments (i.e. airlines, gambling, digital content). It them factors in cash conversion (FCFE/EBIT) of  approximately 55% from 2016-18E. Morgan Stanley expects Wirecard’s EBITDA margin to rise from 28.8% in 2014 to an estimated 32% in 2018 and taxes to remain in the mid-teens. Its valuation uses WACC of 10% and Terminal growth of 3%. 

Credit Suisse (NYSE:CS) has a price target of 48 and values Wirecard on 20x FY18 EPS, broadly in line with higher quality merchant acquiring peers. 

Goldman Sachs’ (NYSE:GS) 12-month price target is EUR 65 and is based 85% on its core valuation of EUR 61 (at 22.5x 2018E PF EPS) and 15% on its M&A value of EUR 90 (6.5x 2018E EV/sales).

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