FOUR - Shift4: A Profitable Outlook After An Unconsummated Buyout

2024-04-17 21:29:04 ET

Summary

• Shift4's shares have fallen by 21% since no satisfactory takeover bids were received. The valuation at less than 5X EV/S is very attractive given the company's strong growth rates.
• The company's rapid revenue and profitability growth, along with strong free cash flow conversion, make it an attractive investment.
• Shift4's differentiation in the payment processing space, particularly with its SkyTab POS system, positions it for continued growth and success.
• The company has a significant opportunity to penetrate international markets with its recently completed Finaro merger.
• The sunset of the company's Gateway offering has significant positive revenue and profit implications.

Shift4: Market share gains, strong revenue growth, rising margins and free cash flow: who needs a buyout to like these shares?

Shift4 shares have hit a speed bump; Shift4’s ( FOUR ) business hasn’t seen even a pot hole. As most readers will recollect, the CEO of Shift4, Jared Isaacson had indicated back late last year that he and his board would be amenable to take over bids. Part of this was a reaction to a hit piece by activist short seller Blue Orca. But some of this was based on the perception by Shift4’s management that its shares were significantly undervalued by public markets. The process of soliciting bids continued for some time and comments on the last conference call enhanced takeover speculation. But while bids that were generated were apparently greater than $83 based on company statements, none of them were at a level that the company considered to be adequate and the process was abandoned.

Interestingly, the payments space has seen some takeover activity; a relatively sizeable Canadian payment firm Nuvei ( NUVI ) was bought by a private equity firm, Advent , who paid a 56% premium for the shares, representing an EV/S of about 6X when adjusting Nuvei's revenue presentation to a basis comparable to that reported by Shift4. Nuvei, itself, had seen modest organic revenue growth, unlike hift4, but the company had grown mainly due to several significant acquisitions. Ryan Reynolds, a Canadian/American actor, had made a substantial commitment in Nuvei shares; sadly for Ryan, the takeout price doesn't quite get him back to break-even on this investment...

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