Susquehanna: Brazilian Payment Processor PagSeguro Likely to Sustain 'Hypergrowth'

Brazilian payment processor PagSeguro Digital Ltd. PAGS reported fourth-quarter revenues Friday that had more than doubled, and a nearly fivefold increase in net income.  

The Analyst

Susquehanna Financial Group analyst James Friedman upgraded PagSeguro from Neutral to Positive and increased the price target from $31 to $41.

The Thesis

PagSeguro's Q4 results and incremental observations suggest that its hypergrowth — 50-percent-plus — could be sustainable in the mid-term, Friedman said in a Monday note. Merchant growth and increased sales per merchant offset by modest reduction in the take rate make Brazil one of the most exciting countries for payments, he said. 

PagSeguro added 1 million merchants since 2016, with the recent quarterly report suggesting the company is on track to add 2 million more by 2019, according to Susquehanna. 

With more merchants accepting more cards, revenues are on the rise, Friedman said. The analyst forecasts total processing volume growth through 2020, thanks to merchant growth and average TPV per merchant. However, a decline in the take rate from 3.41 percent to 2.42 percent in 2020 is likely to offset transaction revenues, the analyst said.

Citing the company's strong Q4 results, particularly with merchant growth and lower expenses, Susquehanna raised its gross revenues estimates for the period from 2018 through 2020.

The Price Action

Shares of PagSeguro, which debuted on Wall Street Jan. 24, were up about 21 percent until Friday.

At the time of writing, the shares were up nearly 2 percent at $35.95. 

Related Links:

Morgan Stanley, BofA Positive On Pagseguro, Brazil's 'Square With A Twist'

What You Need To Know About LitePay