Bryan Garnier downgrades Worldpay on recent share price run

Bryan Garnier downgraded payments processor Worldpay to ‘sell’ from ‘neutral’, maintaining the fair value at 278p, as it said the stock has run too far and it sees no short-term catalysts.

It pointed out that the stock has risen more than 20% since 17 February, and is now trading on 2017 EV/EBITDA of 14.8x, which is “above the level it deserves”. BG said Worldpay’s fundamentals are not impressive for the payment sector, the company is still struggling in the US, and the migration of its customers to its new platform will take time.

Bryan Garnier noted that despite being no. 1 in e-commerce, Worldpay is above all a physical merchant processor and acquirer in the US and UK. It said the company’s fundamentals are not very impressive for the payments sector in terms of like-for-like sales growth as well as profitability and free cash flow, due to its strong positions in physical merchants in the UK and the US, which are both difficult markets.

It also pointed to a lack of critical mass in the US, which prevents it from generating a strong leverage effect and argued that investments in its proprietary platforms that have over-run for some years are continuing to weigh on the group’s figures.

On the upside, BG said Worldpay’s strengths lie in its clear leadership position in physical payments in the UK, its pioneering status in e-commerce and its focus on innovation and development, which should end up paying off over the medium term.

At 1230 BST, the shares were down 3.5% to 310.63p.