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  • Writer's pictureOwen

PagSeguro Will Still Grow In 2020 By 20% Despite The Virus

Summary

  • PagSeguro Digital Q1 revenue was up 26.9% year on year due to strong TPV growth and exceptional PagBank user growth.

  • We examine 9 bearish criticisms that are either wrong or overstated.

  • Since our Buy recommendation in April the stock has moved from ~$22 to $36 - a gain of 60% so we move to a Hold recommendation.

  • We use Q1 and April-May data to estimate full year 2020 earnings with the virus impact in a range of R$ 1,387-1,673 million.

  • PagBank growth is impressive and underappreciated, with accelerating growth of 1 million users in Q1 to 3.7 million users.


Introduction


Our April buy recommendation on PagSeguro (NYSE:PAGS) was well timed with the stock rising from ~$22-23 to ~$35 now, which is a handy gain of 60%. We wouldn't blame traders for taking profits, although we aren't selling. To understand why we consider contrasting views; explaining why we are downgrading PAGS to a hold recommendation, but also busting common bear myths. We try to live up to F Scott Fitzgerald's immortal quote...

The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

So let's hope we function just fine when we start with a review of Q1 earnings and attempt estimates of what 2020 will look like for PAGS.


Quarter 1 earnings

The 1st quarter, usually seasonally soft, still grew strongly.


Year on Year

R$

Revenue

26.9%

1,597 million

Net Income

15.2%

359.6 million

Diluted EPS

12.1%

1.0841

Cash

46.3%

3,542 million

Due to seasonality any Q1 growth over Q4 is a strong result.


Source: CGP Asset Management


Outside of financial metrics for the quarter. PagBank growth rates are exceptional and quarterly user growth is accelerating.


Read the rest of the report here on Seeking Alpha.

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