INGENICO

SELL: 3RD PROFIT WARNING COMING

TARGET PRICE: €70.00

News flow points to continued weakness in the 1H = risk of a 3rd profits warning

Ingenico provides solutions for e-payment transactions including hardware, software & services across all channels (point of sale, mobile, online). The Co. has 3 businesses, Smart Terminals, Payment Services and Mobile Solutions.

Co is due to report on July 26th and based on recent negative news flow:
– India’s April POS terminal shipments of 85k vs. 304k in March, suggest weaknesses
– The company is facing problems in the US (high inventories), Brazil (no growth) and a peaking Europe (hard comps)
– More recently, VeriFone announced a profit warning which indicates an industry wide slump

Despite negative news flow, consensus hasn’t moved much since last February’s results (profit warning)

Ingenico’s FY2017 revenues guidance of 7% organic growth y/y is at risk as well as the EBITDA guidance of a 20bp expansion. Medium term, the mgt has guided for high single digit growth for revenues and an ebitda floor of 20.6%. Consensus sales growth is at 8% for this year and ebitda at 20.4% (vs. 19.7% last yr & 22.5% in 2015). Any slowdown at the top line would hurt margins with the risk of flat margins which would mean that the company has not delivered any growth over 2 years: the subsequent de-rating could be large.

At the same time, Ingenico has to invest heavily in its new terminal range and its online service offering which will further hinder the margin recovery. Management has also stated that they will not cut R&D as is needed to customise Telium Tetra across all regions.

The ePayment is the long-term growth driver, but as in 2015, the company saw a major slowdown in Q1 2017, which raises the question of Ingenico’s competiveness in the online payment platform. If the mgt delivers on their guidance, worries would disappear. First half looks very challenging but 2H should bring back growth. However, one has to have a lot of faith, as failure would sharply slowdown the growth rate of the company.

Assuming marginal sales growth and flat ebitda for the remainder of the year followed by a 6% sales growth rebound and 9% ebitda thereafter, today’s fair value is $68/share. SELL