PAY - The Prognosis For Paymentus Holdings

2023-11-02 16:04:01 ET

Summary

• Paymentus Holdings, Inc. is a cloud-based bill payment technology and solutions provider with a rock-solid balance sheet.
• This "Busted IPO" serves the small business community, is nicely profitable, and is delivering solid revenue growth.
• However, the company has seen some recent analyst firm downgrades despite better-than-expected Q2 results.
• What is ahead for Paymentus Holdings?  An analysis follows in the paragraphs below.

Any sufficiently advanced technology is indistinguishable from magic .”? Arthur C. Clarke.

Today, we put Paymentus Holdings, Inc. ( PAY ) under the microscope for the first time.

Company Overview:

Paymentus Holdings is a cloud-based bill payment technology and solutions provider headquartered in Charlotte, NC. The company offers electronic bill presentment and payment services, enterprise customer communication, and self-service revenue management to billers and financial institutions through a software-as-a-service technology platform. The stock currently trades around $14.50 a share and sports an approximate market capitalization of $1.8 billion.

Second Quarter Results:

Paymentus Holdings posted second quarter numbers on August 7th. The company delivered non-GAAP earnings of 8 cents a share, seven cents above the consensus, and $10.2 million in non-GAAP net income. This translated into GAAP net income of $5.8 million for the quarter and GAAP earnings of a nickel a share. Adjusted EBITDA came in at $14.2 million, a better than 180% increase from the same period a year ago.

Revenues rose just over 24% on a year-over-year basis to nearly $149 million, some $4 million north of expectations. Paymentus benefited from both higher transaction volume as well higher per transaction tickets. Most of it was due to the former, as transactions rose 22.3% from Q2 2022 to 109.5 million.

Management provided the following forward guidance as part of their second quarter press release .

Analyst Commentary & Balance Sheet:

Since second quarter results came out, five analyst firms have reissued Hold ratings on the stock, including Goldman Sachs and JPMorgan. Two of these were the result of downgrades, it should be noted. Price targets proffered range from $12 to $18 a share. Raymond James maintained its Buy rating and $13 price target.

Citigroup downgraded PAY to Neutral on October 5th because " the stock has posted outsized gains this year, soaring 79% year-to-date, implying limited upside over the near-term ." However, Citi's analyst also noted that Paymentus has " shown consistent strong momentum in bookings and improved operational efficiency ."

Approximately seven percent of the outstanding float is currently held short. There have been some small insider sales totaling approximately $120,000 so far in 2023. Paymentus Holdings ended the first half of the year with nearly $160 million of cash and marketable securities on its balance sheet . The firm has no debt on its balance sheet as well. The company produced nearly $18 million in free cash flow in the second quarter, which was a huge improvement from the same period a year ago, it should be noted.

Verdict:

The company made seven cents a share in FY2022 on $497 million of revenue. The current analyst firm consensus has Paymentus Holdings earnings of 20 cents a share in FY2023 as sales rise to $605 million. In FY2024, they see 24 cents a share of profit on just over 20% sales growth.

The company is executing well. The problem with any sort of positive investment thesis on Paymentus is twofold at these trading levels, however. The first is simply around valuation. It is tough to justify paying 75 times forward earnings in a zero-interest rate environment, impossible in one where short-term treasuries yield nearly 5.5%. PAY is a bit cheaper looking at its free cash flow yield of 4%, taking the annual run rate from the second quarter.

The second negative is small businesses are always among the most vulnerable concerns during economic contractions, and my view continues to be the U.S. economy will enter a recession in 2024. Investors also will get a fresh set of data points when the company posts their Q3 results next week ( expected post-market on November 6th).

Technological progress has merely provided us with more efficient means for going backwards .”? Aldous Huxley.

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