Nexi reassured investors with another quarter in which it delivered what it promised: modest growth but strong cashflow.
Total revenues grew 1.1% in Q2 to €915m. Merchant solutions, the largest division was flat as the impact of new merchant signings was offset by the migration of the Banco BPM portfolio in Italy. This was 140.000 POS terminals lost to Numia.
Issuing grew 1.4%, held back by the continuing migration of a large issuing customer which is bringing processing in-house.
Digital banking solutions, up 6%, was the best performer, boosted by its role in Zippay, the Irish bank’s quixotic attempt to build a home-grown wero.
Management is very excited to be part of the digital euro programme and has been selected in a consortium run by G&D to provide offline acceptance. Meaningful revenues are many years away but involvement in the ECB’s project nicely positions Nexi at the heart of Europe’s new payment infrastructure.
Merchant solutions revenue was flat in Q2 at €522m despite 5% volume growth, reflecting the BancoBPM loss and pressure on non-transaction revenues. One competitor in Italy (Nexi’s largest market) is drving down hardware margins by offering free payment terminals. Flatpay looks the likely culprit.
Management highlighted macro weakness in Germany, citing the redundancies in the automotive sector and higher level of business insolvencies. This has impact volumes in hospitality. Poland continued to be squeezed by pricing pressure in eCommerce.
On the positive, new customer wins are “growing mid-teens” and the German ISV channel at “about 30%,” helped by migrating Orderbird volume from another acquirer. Nexi took full control of Orderbird, a Berlin-based restaurant software vendor, in 2022, eight years after Concardis first invested, It says concerns about channel conflict mean that Nexi won’t be taking Orderbird outside Germany.
Nexi presented another quarter of good cost control. Total expenses rose just 2% with personnel expense up 4%.
Nexi isn’t growing much, but it is becoming a formidable cash machine; generating over €400m in H1, ahead of expectations. EBITDA margins stable at 50% and Nexi cut leverage despite paying a €350m dividend in May, redeeming €1bn of debt and spending c.€160m on the Banco Popolare di Sondrio portfolio.
Nexi also confirmed to UBS that it recently rejected an offer for Digital Banking Solutions (DBS). Management now believes that digital euro opportunity makes DBS strategic to the group. Meanwhile, investor chatter continues about a possible private-equity bid for Nexi as a whole.
But for the moment, investors are beginning to buy the story. The stock price is up 50% since its all-time low in March with the market capitalisation now standing at almost €5bn. Nexi is no Worldline; but it’s no Adyen either. Even after the recent rally, Nexi still offers a dividend yield of about 7% and trades on an equity free-cash-flow yield of roughly 15%, suggesting the market continues to price in considerable risk.
