UBS ups Worldpay to 'buy' after pullback

UBS upgraded Worldpay to ‘buy’ from ‘neutral’ saying the pullback in the shares provides an opportunity.

When it initiated on the stock, UBS highlighted its positive view on the business opportunities, but said it struggled with the valuation.

However, since Worldpay published its full-year 2015 results, the stock has fallen 12% while its US peers have risen 12%, leaving Worldpay trading in-line with peers. As a result, the risk/reward is now sufficiently attractive to warrant an upgrade, the bank said.

“We believe that Worldpay's significant exposure to online transactions and investments in new value-added services will help the company to outgrow its peers.”

UBS said Worldpay is a high quality business with strong structural growth linked to the growth of electronic payments (both online and offline) with around 90% of its revenues linked to fees charged per transaction.

“As the company completes the final steps of the technology investment made since separation from RBS in 2010, we expect the business will show a strong improvement in cash generation in 2017 and could deliver 1.5-2 pts of margin expansion per year from 2018.”

UBS said that if Worldpay is able to deliver on faster growth, there is potential for upside in the shares towards 365p.

The bank maintained its 300p price target on the stock.

At 0918 BST, Worldpay shares were up 2.5% to 264.80p.