Wirecard (WDIG) - EU

This is my first stock idea of an European growth stock. Even though most of the people here won’t be that much interested to invest directly in an European stock, any feedback would be great.

Wirecard AG has also ADR’s stocks but with a really low volume.

Little description of the company:
“Wirecard AG is one of the world’s leading independent providers of outsourcing and white label solutions for electronic payment transactions. The Wirecard Group has been supporting companies in accepting electronic payments from all sales channels. A global multi-channel platform bundles international payment acceptances and methods, supplemented by fraud prevention solutions. When it comes to issuing their own payment instruments in the form of cards or mobile payment solutions, Wirecard provides companies with an end-to-end infrastructure, including the requisite licenses for card and account products.”

You can also find a nice slide description of the company and last earning call on their website or seeking alpha: https://seekingalpha.com/article/4162615-wirecard-ag-2017-q4…

Financials:

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Financials:

Revenue in Mln (EUR):

2013: 481.74
2014: 601.03 (+24.8% YoY)
2015: 771.34 (+28,3% YoY)
2016: 1028.36 (+33,3% YoY)
2017: 1489.95 (+44,9% YoY)

Wirecard posted Q4 2017 earnings yesterday;

Q4 2016: 309.01
Q4 2017: 468.56 (+51,6% YoY)

Revenue seems to accelerate.

For the year 2017: EBITDA increased in 2017 compared to the previous year by 34.2 percent to EUR 412.6 million (PY: 307.4 million). In the 2017 fiscal year, the EBITDA margin increased to 27.7 percent (PY: 29.9 percent). The cash flow from operating activities (adjusted) amounted to EUR 375.7 million (PY: 283.0 million).

EPS Growth:
2013: 0.74
2014: 0.89
2015: 1.16
2016: 1.43 (adjusted for the special effect from the sale of Visa Europe of EUR 176.9 million)
2017: 2.10

Wirecard has a market cap of 9.72b EUR (12b USD), a P/E ratio of 47 and a P/S over 8.

Ebitda is going down, but they raised their guidance from 510-535 Mln to 520-545. They also raised their 2020 guidance and said in their conference call that they are being conservative. You can find the transcript here(translated from German): https://seekingalpha.com/article/4162671-wirecard-ags-wrcdf-…

Wirecard has contracts with big companies like Alibaba, Tencent, American Express, FedEx, Apple Pay, etc.

They are alot invested in the E-commerce market, which has a huge TAM and is still at the beginning of its era. I recommend to look at their website where you can fin alot of information of what they are doing (or look at the interesting slide transcript on seeking alpha).

Any feedback is welcome. I’m still doing some research on the company, but I already bought some shares at around 91 EUR/share and at 102. It’s now at 105,75.

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Doesn’t look cheap but that’s a great list of newly acquired clients in 2017

Who’s the competition?

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I didn’t dig alot into the competition for the moment but I’ll do it this weekend.
From what I’ve seen I think their biggest competitor is Worldpay (WP), which seems to be a nice company too but their revenu growth is lower.

There is a also a French company called Ingenico Group, but their revenue growth were very low the last few years and their 2018 guidance wasn’t that good.

It seems that Wirecard is growing the fastest among its peers. They created Wirecard North America only last year so there is probably alot of room to grow there.

Looks interesting but already a 16bn market cap with a PR of 60+

Looking at the deck, the organic growth is ~25%. Rest and the acceleration came from acquisitions including Citi payments in US and Asia.

Ingenico is mature now - they make those chip and pin card readers.

Ant

Yes the organic growth isn’t that crazy,+24,7% last year (but +20,6% prior year).
They guided >25% organic growth this year.

You can see on their investor presentation that apparently only 15-20% of all transactions are electronic payments, with only 8 to 10% fully digitised. I think they are only at the beginning of their growth, but I don’t know if it justifies the high price of the stock.

They are focused on 7 “megatrends”: Cash to digital, connected commerce, cross-border payments, real-time payements, AI, IoT and financial inclusion.

I also think that there won’t be only 1 winner in this market (like it was for the semi-conductor market years ago), but I’ll keep an eye on the competitors like Worldpay (WP) and Global Payments Inc (GPN).

I’ll keep the stock at around 4% of my portfolio because they are not cheap and see how they do in the next quarters.

Thanks all for the feedback :slight_smile:

Ps: for the people that aren’t interested in the company as an investement, you can still read wirecard’s blog where they post articles about the new trends of the digital world and e-commerce, and the new inventions in the payement market (like paying with only your fingerprint, IoT in commerce, etc).
https://blog.wirecard.com/

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A?ce??

Ok this was a bit of a wake up call.

I must have been asleep at the wheel with all my transactions here in Singapore. Yeh you see the paywave ads from Australia and yes every checkout counter has about 5 different chip and pin reading devices as banking integration is just non-existant and yes you see the First Data sign printed out on your receipts and stickers in taxis promoting Ali Pay.

However amongst all this payment detritus what had escaped my attention until I noticed it on Sunday was all of the hardware devices all are labeled Wire Card by the screens whether it is Ingenico device etc or whether it is tethered to Amex or Mastercard or whatever banking franchise. This was most prominently on display on the proximity based touch or flash pay sensing devices (although the older swipe variants had it as well). Literally every point of sale (POS) terminal I saw on Sunday had it on.

I will continue to keep a look out now that I’m conscious of it. Not sure what that means - whether they are a growth play or whether they have achieved market saturation already I just don’t know but I thought it was interesting.

Haven’t been to the US of A or Europe since attending a wedding last August in Washington and routing via London so can’t comment too much on other territories but they do claim that Asia is one of their most heavily penetrated markets so if the US and Europe follow suit then they should grow nicely.

Looking at their website over here I notice a number of things immediately…

  1. They don’t claim to be “A leading provider…” they actually say “The leading provider…” in ASIA which is significant now that everyone claims to be “a leading provider…”
    https://www.wirecard.asia

  2. Their office Asia HQ is in the heart of the SG financial district in a very high quality, prominent and prestigious location and they are locally present in all of the main SE Asia markets plus India, HK, Aus, NZ as well as Myanmar so geared for coverage and growth.
    https://www.wirecard.asia/company/wirecard-asia-pacific/

  3. Their POS solutions tie into all the leading hardware POS players (ingenico and verifone etc)
    https://www.wirecard.asia/products/payment/pos-solutions/pay…

Ant

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Hi A?ce??,

I was fascinated with this name because I had thought it was one of those I had bought way back in 2006 or 2007. I don’t know how old you are nor how long you have been investing but would say that for me as a general rule, any stock that has gone up 20 times in nine years means that I might have missed the chance for really big gains. This does not mean that you cannot make a really good gain but that the sort of stellar returns that those on this board aspire to might be more difficult.

I have been looking at GMO gateway in Japan (3769) with a view to buying that and run into much the same situation when looking back at its chart . It is up from around 1,200 to 10,000 in five or so years.

I found when trying to analyse these two a website called datanyze.com which might prove interesting for you when trying to evaluate whether Wirecard is one of the winners in this market segment.

By the way, what was the other stock you had looked at/bought that you mentioned in your first post ?

J

Ant,

Thank you so much for your valuable information. I’ve seen in their annual report that 46% of their employees are in Asia Pacific and only 8% in the US. Like you said, if they manage to catch up in the US (and Europe), the growth should be interesting. I have the same question as you; will they keep their growth or are they already in market saturation ? I guess I’ll see in the next quarters.

It’s a risky and expensive stock, but with the financial market evolving so much these days I like to think they could do great.

They also acquired Mizuho Bank as new partner last month, do you have any thought about it since you live in Asia ?

Thank you again for your help and feedback, means alot to me!

Ascent (That’s supposed to be my nickname :D)

Hi J,

Of course I don’t expect them to do a 20 bagger again in the next ten years, but they could still be like a 5 bagger if they do really well. I don’t know if looking at the stock performance in the past is a reason to not get involved, even though I have the same feeling that I have maybe missed the boat. I’m 24 and started investing since a year ago now, so I couldn’t get in the boat much earlier, but if I was aware of the company last year I would have been a happy guy now.

But when you see companies like NVIDIA with a 10x gain in 2.5 years, doest it mean we should not invest in it anymore ? I know these two companies are not even comparable, but again NVIDIA is a 140Bn company and Wirecard “only” a 9.7 Bn € company. Should we not just add to the winners ?

The other company I bought is alot smaller than most of the companies talked about here, and you won’t like it too when you’ll see the run-up since 2016 (a 10 bagger in only 1.5 year).

I don’t think I’ll make a thread about it anyway because I won’t recommend it at this price, but I’m already at +33,5% since I bought it during the dip in february.

The company is a french small stock called “Xilam Animation”. They are a 250mln euro market cap company that makes animation for kids. Their growth has been (and still is) spectacular thanks to the digital platforms. They had in 2017 2.6Bln views on youtube and have 4 new contracts with netflix and 2 with Amazon Prime.

What I like; The crazy growth, the CEO (see below), the business model (disney like ?).

The risk: The growth will someday slow when their market penetration in the digital platforms will be achieved.

I was quiet impressed with the CEO (Marc du Pontavice). After seeing some interviews, he seems to have alot of financial knowledge for someone who is “just” a creator of cartoons. Even after 15 years, he still has above 50% of the shares of his company. I like what he said in an interview last week (translated from french): “The dividend is not on the agenda. We continue to self-finance our growth without shareholder dilution. I believe that the company’s money is now more profitable when it is invested in its development”
or: "Does Xilam arouse envy?
“Xilam is an obvious prey, because of the power of its catalog. No channel can be built without content and Xilam brings them an indispensable depth … We have taken 15 years to build the model and become a cash machine, this is not the time to give in!”

I bought Xilam during a dip at 43.75 in february, it’s now at 58.4

The reason why it did x10 in less than 2 years is because the company was for a very long time undervalued. Financial institutions probably didn’t even looked at it. It was 3% of my portfolio (now 4% with the 33.5% gain), but I won’t add anymore because I don’t know when their growth will stop, but the CEO seemed to be optimistic for the next few years.

Best,

Ascent

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Ascent,

I’ve looked at WDIG as a way to deploy some of my Euros. I heard about the company from a certain Gardner-led premium service that has recommended the American Depository Receipt version. To me, at first blush, it looked euphorically expensive at 105. So I remain watchful for a drop, fully realizing it could only rise from here.

Thanks also for the Xilam idea too.

Joe

Hi Ascent,

Firstly congratulations on two fronts ; 1. For being an investor at 24. You are younger than my children and they have only just stated dabbling in the markets and I have told them to read this board to help with their investing education & 2. Love the fact that you are looking at European stocks under 1bn in cap. This is a neglected space and therefore mis priced much of the time . Xilam is indicative of this and at your age I would be looking at little else from an investing perspective. The Japan small caps markets is much the same and has many companies which have had a similar return to Xilam based on nothing more than some encouraging results and a massive positive re rating.

I have found such a situation much less often in U.S. because generally the markets are better covered and smaller stocks are hyped ( with justification a lot of the time and without some of the time) more. As an example, I think Shopify is a great company doing great things but is it worth the present valuation …

I invested in nvidia years ago and made a small profit but then it wasn’t the AI darling story it is now. I have hedge fund friends in London who tell me what a fabulous business this is and they don’t know one end of a stock from the other. Bandwagons are dangerous but not always wrong.

Good luck with Xilam . Content is king and so they might be a real winner and I love the cash is king statement. That is so true and I forget it too often. I heard on the BBC radio this morning at breakfast that Netflix believe in content so much that they are spending 8bn on it and they are still shipping cash. Not a great business model and frankly if it was copied in industry would lead to charges of dumping by competitors.

There is a German equivalent of Netflix which I looked at two weeks but think that given entertainment is a US centric business it will have a hard time breaking through.

Take care. J

Hi Joe,

Yeah Wirecard is quite expensive, 1 bad news and the stock could be hit hard. But I got the “chance” to buy at the dip at 92.6, it’s now at 110.7
I won’t add at this price though.

Same for Xilam, 62.1 now. Xilam will probably go down soon though (+35% in just 2 weeks seems a bit to euphoric). I’m wondering if I should sell and buy lower (I don’t pay taxes in my country when I sell stocks). But not sure if it’s worth the risk, it could still go up!

Best,

Ascent

Hi J,

Thank you for your kind words. I’m really happy to start at this young age. I still have alot to learn but I’m very excited about it. Investing became my passion and I hope I’ll make a living of it someday.

You’re right, alot of European small stocks are undervalued. Actually, I made most of my money thanks to french small stocks. Just to name a few: Bilendi (only a 51mln market cap, sold at 13 euro with a 70% gain in 11 months), Atari (+75% in 6 months, sold half already), etc.

Actually, I only like German stocks and French small stocks (and some Belgian biotechs). Other countries could be interesting like Sweden, UK or the Netherlands.

I still prefer the US market though. The greatest companies in the world always come from there, and it’s like in Europe everybody wants to copy the US.

Here in Belgium everybody loves Netflix, so I wouldn’t bet against it with an European equivalent.

Best,

Ascent