For months the only line that mattered to shareholders of payments group Worldline was the one sloping down. Slow progress on selling a payment terminals division was one reason the French payments group’s market value halved since late July.
Bulls see Worldline as a potential consolidator in the fragmented payments industry, which many incumbent banks are exiting. Selling the wireless card payment terminals, never seen as important to the group, would provide cash for more purchases.
When Worldline paid €7.8bn for local payments rival Ingenico in 2020, the terminals business came with it. On Monday Worldline happily announced that US buyout specialist Apollo had paid €1.7bn in cash upfront, plus additional preference shares worth as much as another €900mn. Markets cheered briefly, then lost interest.
Jaded investors clearly need more to spark their interest. A significant chunk of the price comes via the preferred shares portion. The value of these depends on how much Apollo can improve the profitability of the terminals business. The cash valuation alone implies free cash flow will slide at a 7 per cent rate annually long term. That perhaps underestimates Apollo’s abilities. It also understates the potential of the unit, thinks Citi.
Apollo will receive a cash generative business that with leverage should generate a typical 18 to 20 per cent compounded annual investment return desired in most buyout transactions. It may also see a bargain, paying under 7 times forward ebitda including any added preference shares. The closest rival to this business, Verifone, was bought by another buyout group for 10 times in 2018.
The issue is perhaps more prosaic. Worldline reports full-year earnings on Tuesday and investors do not take chances on fintechs as they once did. Until the tech-friendly, risk-on market returns, Worldline’s share price will continue to stagnate, however it tweaks its portfolio of businesses.
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