Jefferies starts Wise at 'hold', Network International at 'buy'

Jefferies assumed coverage of the payments & fintech sector on Tuesday, initiating coverage of Wise at ‘hold’ with a 624p price target.

The bank said ‘buy’ rated Adyen - for which it has set a target price of a €2,088 - is its top pick. Among mid-caps, it rated Network International at ‘buy’ with a 413p price target. Nexi and Worldline were both started at ‘hold’, with price targets of €8.5 and €43.9, respectively.

Jefferies said the payments sector enjoyed several post-pandemic tailwinds this year, including the return of in-office work as well as travel and inflation.

"However, we are cautious into 2023 given the combination of an economic slowdown and a cost-of-living crisis that are likely to weigh on consumer spending and limit revenue growth upside," it said.

"At the same time, we expect salary inflation to cause margins to expand only modestly. Our top pick is Adyen, which we see as best positioned to weather the storm given its best-in-class solution to support the digitalization of all sales channels (Unified Commerce). Ramp-ups at recent merchant wins (Dior, Uniqlo, etc) should make up for the softer consumer demand."

As far as Wise is concerned, Jefferies said its hold rating is based on balanced risk/reward as it reckons the company will be able to outperform current growth expectations despite likely competition from incumbent banks and a rise in market entry by mega-tech/payments companies including Apple, Adyen, Stripe, and Meta.

"At the same time, we see limited operational gearing given that consumer-facing businesses demand continuous marketing investments, while inroads into banking activities (assets, accounts) will demand additional technology and headcount (compliance, operations) investments to meet the regulatory burden," it said.

As regards Network International, the bank said its price target values the group at premium to global acquirer peers, which it considers to be justified by the higher growth profile, attractive end-markets, and margin expansion potential.

"We see Network as well positioned to win future outsourcing contracts from MEA banks, which mostly still run its card issuing business in-house. Via the acquisition of DPO, Network also gained scale on the direct merchant side in a high-growth market," it said.

At 1445 GMT, Network International shares were up 3.4% at 313.20p, while Wise was 2.3% higher at 664.60p.