Q: Hi Team,
Can I have your thoughts on nvei earnings? Currently the market is not happy with them and SP is dropping like a stone. In the release I see the net earnings have collapsed due to what appears to be interest payments on debt. This being said; what would possess them to start giving out a cash dividend when net income is almost now zero? Wouldn't the money be better spent trying to pay the debt down that is now sinking their net earnings? It seems even though revenue is building and even though they keep adding new customers they just can't get their earnings to improve. Is it time to dump this name or hold out for better days, or perhaps a takeout?
Shane.
Can I have your thoughts on nvei earnings? Currently the market is not happy with them and SP is dropping like a stone. In the release I see the net earnings have collapsed due to what appears to be interest payments on debt. This being said; what would possess them to start giving out a cash dividend when net income is almost now zero? Wouldn't the money be better spent trying to pay the debt down that is now sinking their net earnings? It seems even though revenue is building and even though they keep adding new customers they just can't get their earnings to improve. Is it time to dump this name or hold out for better days, or perhaps a takeout?
Shane.
5i Research Answer:
We have comments posted on the results, but its significant increase in debt balances to fund acquisitions have caused its interest payments to rise, and this has caused margin compression. It continues to generate positive free cash flow and annual dividends of ~$60M can be funded through its cash position of ~$133M. Its financials may suffer in the near-term as it pays dividends and attempts to reduce its debt, but management is still targeting revenue growth of 15% to 20% and it's market cap is nearing its book value. We feel that if its growth stabilizes, that these levels will appear attractive, but we consider this name a hold for the time being.