These Analysts Insist Wirecard AG (FRA:WDI) Remains Considerably Undervalued

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Wirecard AG (FRA:WDI) (OTCMKTS:WRCDF) (OTCMKTS:WCAGY) took a real hit last year when the company found itself on the wrong end of an unwarranted short attack. Despite being one of the biggest payments processors in the world, large portions of the market chose to take the word of an unknown research organization as more reliable than that of the analysts following the stock and wiped off more than 30% of Wirecard’s market capitalization between January 2016 and March the same year.

As is to be expected, with the accusations proving baseless, Wirecard has appreciated considerably across the 12 months subsequent to its March 2016 lows. Despite this appreciation, however, analysts still expect Wirecard’s share price to rise throughout the second quarter of 2017 and beyond.

Here is a look at where these analysts think this growth is coming from and what price target each has on the company right now.

Before we get started on the price targets, and for those not yet familiar with Wirecard, we’ll kick things off with a quick introduction to the company.

It is a German-based entity that – at last count – served more than 170,000 clients across the globe. These range from small individual retailers doing business online to large multinational corporations using Wirecard’s services as a full suite payment processing framework for their various operational activities.  Outside of its technology offerings, Wirecard Provides consultation type services, with things like relationship management, risk control and expansion strategy guidance all underlying the existing relationships it shares with the clients on its books.

Just recently, and on the back of the company’s acquisition of the prepayment card operations of US banking giant Citigroup Inc (NYSE:C), Wirecard expanded into the US. In doing so, the company has taken a considerable step towards overtaking its primary competitor, and the leader in the space from a client count perspective, Worldpay Group PLC (LON:WPG). The move marks the company’s first foray into the North American market and sets the stage for industry leadership in the fast-growing payments processing sector.

Now let’s look at the expectations of various analysts.

For the purposes of this discussion, we’re going to focus on five institutional analyses. These are those of Hauck & Aufhäuser, Baader, Commerzbank, Berenberg and Godman Sachs.

First then, Hauck & Aufhäuser.

This firm put out its latest Wirecard report on April 10, 2017, subsequent to the company’s conference call. Based on the call in question, H&A kicked off the report with a reaffirmation of its opinion that Wirecard holds a leading market position for payment service and risk management solutions for merchants globally and followed up with the opinion that the growth potential for the company is not fully reflected in the then-current share price of €53.

The growth potential, according to H&A, is rooted primarily in the global shift towards more efficient payments processing. The firm highlighted the fact that currently only 6-7% of transactions are processed efficiently. Accordingly, Wirecard is positioned to take advantage of the inevitable push to increase this percentage figure. Wirecard put out guidance last month for 2017 revenues of between €382-400 million and H&A, in its report, reinforced the company’s ability to meet the high end of this guidance, if not outpace it altogether.

The price target the firm placed on Wirecard at the time of its report was €65. At the time of writing (this report) the company trades for €58, suggesting a 12% premium.

Next, Baader.

Baader’s latest report came on April 18, 2017. Most notably, as part of this report, Baader suggested that the company’s guidance for 2017 understated the company’s potential. A number of inputs fed into this suggestion, primarily that Wirecard’s 2016 financials showed no signs that organic EBITDA growth should slow in 2017 (organic EBITDA growth was 26% in 2015 and 27% in 2016; guidance for 2017 at mid-point: +24%) and that M&A costs should decrease during 2017, as compared to 2016.

Baader made a point of noting that the above-mentioned acquisition of the Citi operations was included in these estimates. Based on these assumptions, Baader estimates an outperformance on Wirecard’s 2017 guidance, suggesting EBITDA could reach €408 million (€8 million above the higher threshold of the €400 million guidance given by the company last month).

Based on its analysis, Baader has a €70 price target on Wirecard – a 20% gain on the company’s current price.

Moving on, Commerzbank.

The Commerzbank report highlights the fact that Wirecard remains one of its top secular growth plays. The research report pointed to a slight acceleration of organic revenue growth during the first quarter of the year contributing to as underpinning revenue of €276m. The company’s preliminary estimates for this number actually came out as €274 million, representing a circa 31% increase on the €210 million reported during the same period in 2016.

Just as with the other analysts covering this stock, Commerzbank pointed to industry expansion in the payments processing space (and the drive for efficiency therein) as fundamental to Wirecard’s growth potential going forward. This was a common thread throughout the majority of the company’s analyst coverage.

Looking at a price target, Commerzbank has Wirebank at €65. The company was trading for €53 at the time of the target’s placement, implying a 22% performance to its then-price and a 12% premium to current pricing.

Next, Berenberg.

This is one of the more conservative reports on our list, yet it still presents a significant upside potential to the company’s current share price. Berenberg highlights the Citi acquisition as being key to Wirecard’s growth potential, with this suggestion primarily rooted in its impact on shareholder opinion. Specifically, Berenberg notes that the acquisition has proven to investors that Wirecard’s relationship with the US authorities is not as poor as some believed and that this paves the way for further expansion in North America going forward. It goes without saying that North America is a key market in the electronic payments space and, as such, any indication that Wirecard is overcoming hurdles to expansion within this market is almost certain to support and strengthen bullish sentiment.

We noted that Berenberg has a conservative opinion when compared to some of the above reports, but this conservatism refers to its price target only. Berenberg believes that Wirecard can outperform on its guidance of €400 million for 2017, with €404 million listed as a most likely scenario and €421 million as blue-sky.

Finally, Goldman Sachs.

Goldman Sachs is one of the only reports on this list to highlight the potential for growth in Asia (on the back of a spate of recent acquisitions in the region) as fundamental to its forward thesis on the stock.

Further, Goldman notes that Wirecard should benefit from an increase in the scale of its operations over time, stating that this will lead to a proportional increase in the company’s transaction volume per merchant.

Looking at the firm’s price target, Goldman falls in line with both Commerzbank and H&A in its placing of a twelve-month target of €65 on Wirecard. That’s a 23% premium to Wirecard’s price at the time of Goldman’s report publication, and as noted above, represents a 12% premium to the company’s current price.

 

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