Acquisition synergies deliver 10% EBITDA growth at Nexi. No update on Sabadell.

Nexi, which is vying with Worldine for the title of European payment champion, posted revenue of €835m in Q2, up just 3% on an unadjusted basis. Good growth in Merchant Solutions, up 10% to €474m, and Issuing Solutions, up 7% to €270m was dragged down by declining sales in the Digital Solutions division, which has been hit by the impact of banking consolidation in Italy. 

Paolo Bertoluzzo, CEO, said revenue growth would have been 8% when adjusted for currency fluctuations, acquisitions, businesses held for sale etc and “confirms solid and profitable growth in all our businesses and in the different geographic areas in which we operate, despite the ongoing uncertain macroeconomic situation.”

The merchant division interests us most at Business of Payments. Like Worldline, Nexi is becoming increasingly dependent on sales to merchants as their traditional business model of process outsourcing for banks comes under pressure. Merchant Solutions accounted for 57% of total revenue, up from 53% in the same quarter of 2022.

Bertoluzzo was pleased with the “acceleration of revenues in Merchant Services in the DACH region, and acceleration in e-commerce, broadly across geographies.” However, Bernardo Mingrone, CFO, added that merchant services growth was “a touch lighter than what we might have expected” and blamed tough comparisons from 2022. For example, the growth in high-margin foreign card transactions in Italy, Nexi’s largest market, slowed to just 6% in June as you can see below. 

There was more positive news further down the P&L. Nexi is proving adept at realising synergies from the acquisitions of SIA, Nets and Concardis. It has closed five of 25 processing platforms, says it’s on track to decommission another five in H2 and, longer term, to reduce the number to just four. Similarly, it has closed 11 of 45 data centres and is on track to shut another two in H2. 

Total expenses fell 3% to €399m yielding a welcome 10% increase in EBITDA to €436m. 

Looking in more detail at Merchant Solutions, payment volume rose 8% to €209bn in Q2. Over half Nexi’s volume still comes from Italy but growth in its home market was just 6% compared to 11% elsewhere. The DACH region was particularly buoyant and recorded “strong double-digit” increases across the quarter. 

Two thirds of Nexi’s merchant volume is from SMEs with the remainder split between eCommerce and Large/Key accounts. Highlights include:

  • SME – volume up 14% in H1 driven by 145K extra POS terminals and 250,000 additional customers compared with a year earlier. Management called out significant growth in Italy and Poland. The SoftPOS roll out is progressing across geographies.
  • eCommerce – volume up 8% in H1 and revenue up double digits as client numbers rose 10% year on year. Sales accelerated in Italy and Nordics. There was good performance from A2A (the old P24 business) in Poland. Management is pleased with progress signing new ISV partnerships. A commercial agreement with Shopware, the German eCommerce platform, is now live in Italy and DACH. Nexi says it has been selected as Shopify’s preferred partner in Poland.
  • Large account/key account (LAKA) – volume up 10% with most new wins in omni-channel retail, hospitality/restaurants and mobility/petrol. 

Alongside the results, Nexi announced it had taken a 30% stake in Computop, the German eCommerce gateway. The purchase price was not disclosed. This partnership is highly complementary to the Concardis acquiring business and reinforces Nexi’s presence as market number two, behind Worldline/PayOne. Computop claims 30% of the German eCommerce payment market but processed volume fell 12% in 2022 to €30bn. The poor performance partially mirrors a general fall in eCommerce volumes in Germany but Computop also lost customers when it exited the adult and gambling segments. Nevertheless, Computop is also believed to be under pressure from international acquirers with integral gateways such as Adyen, Stripe and

Speaking about potential future corporate activity, Bertoluzzo said that Nexi was not interested in entering the UK market where Barclays is reportedly looking a strategic options for Barclaycard. “At the moment, we are not looking at the UK, we have other priorities and that’s not necessarily a market that we consider for us attractive.”

We would expect one of these other priorities to be the merchant acquiring business of Spain’s Banco Sabadell which announced a JV with Nexi in February this year. Surprisingly, Nexi gave no update during its results announcements, but Sabadell has suggested that the deal may now not close until H1 2024, six months later than scheduled. 

BancoBPM, is certainly no longer a Nexi priority. The Italian bank has chosen to ignore its long standing partnership with Nexi and opted for a joint-venture with BCC Pay, a local newcomer. Bertoluzzo said the revenue impact of losing the bank is expected to be zero this year and negligible next year. He felt that BPM customers were “used to Nexi products and propositions that are quite advanced for Italian standards, and quality of service” indicating confidence that Nexi can defend its existing customer base. 

Asked whether he felt that PE firms were inflating valuations for payment companies, Bertoluzzo explained that “the multiples that we see around these days are probably far too low, given the potential value generation of the sector.” He went on “we’re not particularly worried about private equities coming in and inflating price and so on and so forth, because honestly, buying additional assets is not our priority. So we are very selective on what we’re looking at and currently, we are looking at a very, very small number of potential small opportunities, where honestly, we don’t see private equities around.

Discussing progress divesting non-core businesses, management said that the sale of NetsDBS had been delayed by the unexpectedly early publication of EU draft directive on electronic ID wallets. However, they still hope to close the transaction “in the coming weeks.” There was less positive news about Ratepay, the German BNPL business inherited from the Concardis acquisition. Berltoluzzo said “It’s not the most ideal market to sell a consumer finance business.” 

Finally, commenting on the Italy’s progress towards electronic money, Bertoluzzo said “Personally, I’ve not been using cash for the last many, many, many weeks… but as soon as you go outside the metropolitan areas, there is still a lot of cash payments around. …the overall penetration of digital payments in Italy, is probably today in the low mid 30s, which is still very much behind what you see in the rest of Europe…There is a long, long run in front of us in terms of cash to digital payment conversion. It’s happening. It’s good it’s happening, but there is a long, long way to go.

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