End of machines? Why PagSeguro (PAGS34) melted 23% – and took Stone along – Money Times

This year, PagSeguro accumulates a 52% drop amid rising interest rates, which directly impacted the company (Image: PagSeguro/Disclosure)

the action of PagSeguro (PAGS) melted 23% in this Thursday’s session at Nasdaqthe technology exchange United States. Also traded in NY, the StoneCo (STNE) fell by 14%. In Brazil, the sky (CIEL3) fell by 0.27%.

But what explains this drop, even with the 29% growth in net income in the first quarter, to R$ 350 million?

In general, analysts liked what they saw in the first quarter.

Even so, the BTG Pactual, which has neutrality for the company, says that despite the stock being traded at attractive multiples, the quality of earnings is a concern.

“With the rate Selic likely staying higher longer, along with investments flowing into future results through D&A (data & analytics), we see room for further profit drawdown,” he argues.

O BTG recalls that the stock fell below US$ 10, but recently returned to the level of US$ 17 “with the insane volatility of the markets”.

Expenses are also a point of attention, as they jumped 54% compared to the fourth quarter, totaling R$ 621 million and 26% above the expected BTG.

In this year, the PagSeguro accumulates a 52% drop amid rising interest rates, which directly impacted the company.

How were the PagSeguro numbers?

O Itaú BBA ranked the numbers of PagSeguro positive, with a 66% improvement in revenues, driven by a higher acceptance rate and higher operating leverage.

The net income of R$ 350 million also exceeded BBA’s expectations (R$ 311 million).

“Guidance requires continuous growth in net income, despite lower net margins”, put analysts Pedro Leduc, William Barrajard and Mateus Raffaelli.

They further highlight that the total payment volume (TPV) rose by 60%, while the active merchant base grew by 5%. According to the BBA, this is a consequence of:

  1. efforts to attract more selective customers in general;
  2. natural end of traders in the last twelve months after the pandemic;

For the bank of americathe figures were good, supported by repricing, strong TPV growth and lower tax rate, which offset the strong increase in funding costs.

The bank recalls that the PagSeguro added 1.7 million users, while the acquiring customer base remained flat in the quarter, reflecting the focus on profitable customers.

Expenses grew 14 times, impacted by the increase in the Selic rate and the expansion of credit volumes (each factor contributed about half of the increase).

O UBS remember that the PagSeguro benefited from tax benefits related to investments in innovation and technology and differentiated tax regimes for companies abroad.

PagBank, PagSeguro
According to the company, most of the price adjustments have already been implemented by April, but additional adjustments are not ruled out (Image: Diana Cheng/Money Times)

PagSeguro projections

As a result, the PagSeguro also released projections for 2022. The company expects to reach total revenue of R$3.5 to R$3.7 billion and a TPV of R$83 to 85 billion, with net income exceeding R$370 million.

According to the company, most price adjustments have already been implemented by April, but additional adjustments are not ruled out, depending on interest rate increases.

In the view of BBAprojections are positive despite net margins falling by 40 bps (basis points), which shows the pressure on net margin is not over, but has been reduced through a combination of revenue and cost efforts.

“Net profits, in turn, are already expanding. This creates a solid foundation for expanding net income in 2023 through margins as basic interest rates fall in Brazil.”

What to do with the paper?

O bank of america maintained the buy recommendation, with a price target of $27.

According to the bank, the PagSeguro is expected to show improving operational trends throughout the year, supported by the successful repricing of the prepayment product, which should more than offset higher financing costs.

O BBA sees growth of PagSeguro, with action on attractive valuations. The recommendation is outperformance, or above the market average, with a target price of $28.

UBS and BTG kept the neutral statement.

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O Money Times publishes informative articles of a journalistic nature. This publication does not constitute investment advice..