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Giro Lino's avatar
$3.1m follower assets
New Post About Payments $STNE $NU $MELI $PAGS
According to our proprietary research and expert channel checks, instant payments can affect many use cases involving merchants and consumers.

In the past month, we heard over a dozen CFOs and Senior Product Managers trying to map where instant payment schemes could offer a threat to profit.

Our perception is that C-level management doesn’t see Pix as a core, and Product Executives are solely focused on implementation.

Even though we agree they should focus on their respective roles, we missed more granularity about the economic impact of Pix.

So, illustrated below, we set our war table for estimating where and by how much Pix and probably most instant payment schemes should affect profit pools.

Source: Giro Lino.

We built this table based on the available evidence, gathering and processing all data since Pix was launched in the 3Q20 and in our new top-down model for payment companies.

The first evidence we highlight is the transaction market share. By the 4Q21, Pix had gained an 8.9% market share. Also, it’s worth mentioning that credit cards gained market share during the period.

As the following illustration shows, bank slips, wire transfers, and withdrawals (cash) were the main losers.

Source: Giro Lino, BCB.

However, based on historical growth, we observed that Debit and Prepaid Card growth decelerated since Pix was launched, raising the question of whether Pix isn’t stealing the incremental volume directed to Debit.

If that is the case, and the argument sounds reasonable, Debit card penetration should slow in the following years.

On the other hand, we see evidence of accelerating credit card adoption since Pix was launched. After deep research, we concluded there is a different external factor for such acceleration.

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April 2022 Bloodbath - Names Down >30% Since April 1
April 2022 was one of the worst market months of all time. In fact, it was the worst since October 2008. Here are 100 stocks down >30% since April 1:

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Giro Lino's avatar
$3.1m follower assets
Good News
I’m writing the post about the POS machines we bought in February. I had to make sure to be covering the essential topics. So, I went over a few hundred tests and am now good to move on to writing. Good stuff is coming up next month.
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Brazil rate hikes
Brazil hiking Selic rate by ~10ppts in a little more than a years time presents a huge opportunity for Brazilian equities... Lots of current environment risks priced in, yet not a lot of future value discounted into current prices. Of course political risk is top-of-mind, but I'm putting higher weight that macro environment becomes friendlier for high-growth businesses. $XP $PAGS $NU

Selic from 2016-Present:
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Giro Lino's avatar
$3.1m follower assets
New US-Listed Brazilian Fintech
Inter Platform #BIDI11 should join $NU, $MELI, $STNE, and $PAGS as another US-Listed Brazilian Fintech.

We're writing a quick "101" so investors get to know more about the company.

Yet, the company didn't confirm the US Listing. This is solely my opinion based on years following the industry.

Let me know if you have any topic we should include in the "101".
Giro Lino's avatar
$3.1m follower assets
$PAGS Shows Solid Operational Trends in the 1Q22
$PAGS released operating data for 1Q22, showing solid consolidated TPV growth of 87% YoY to R$152bn in 1Q22.

Moreover, acquiring TPV grew 1% QoQ and 60% YoY, reaching R$80bn in 1Q22. Meanwhile, non-acquiring TPV rose 9% QoQ and 57% YoY.

Even though the company is delivering solid volumes and revenue growth in the past Qs, I'm still concerned with higher rates pressuring the bottom line.
Giro Lino's avatar
$3.1m follower assets
Yesterday, I read Bradesco's report on $NU. Before giving my opinion, let me tell you how I read sell-side reports. I don't care much about the writing, as they usually copy it from the prospectus. Instead, I focus on looking for mistakes in their estimates, which is typical.

So, no hard feeling on any sell-side analyst reading the thread. It's normal to make mistakes. Now, about $NU. As pretty much nobody knows enough about the company, they (sell-side analysts) usually talk to each other to match the big numbers.

Bradesco wasn't different. Big numbers look very much like GS, BTG, and so on. What usually differs the output is i) analyst background (bias) and ii) technical competence. If you ask an analyst who covers $ITUB and $BBD an opinion about $NU, he'll tell it's rubbish.

He will say that because he's used to short-duration stocks growth, consolidated markets, and high economic correlation stocks. This is a bias. And it's okay. Everyone has preferences analyzing stocks, as do I.

The problem I found in Bradesco's report can be summarized in the table below. There are two problems: i) four years CAGR for a company such as $NU, with a cash flow duration above 20yr, isn't enough.

An investor that holds a $40b Fintech in LatAm should expect that $NU growths above its peers for more than four years. Assuming that $NU would grow above its peers after 2026, you're slashing its upside for nothing.

But it's okay. Let's say the analyst is being conservative here. Problem (ii) is the multiples. He used TRADING multiple to estimate the value for each business. I'll repeat it: TRADING multiples.

For instance, using trading multiples implies that if $ITUB goes up 50% over the next week, $NU's intrinsic value should rise as well... C'mon... This isn't intrinsic value.

I did the math again, using NTM multiples at fair value for each business (interchange only used $PAGS). The difference in the value for $NU would be 50% using multiples on fair value instead of trading multiples.

Does it mean that $NU is cheap? Honestly, I don't know. So far, I have barely spent 20 hours studying the company. That would require a more profound analysis. But, if you're curious about the difference in the price target if BBD had used the correct multiples, I'll tell u.

Using trading multiples, $NU would be trading a 4yr IRR of 2%, while using Target Multiples would give u a 12% IRR for the period. Roughly speaking, that would be a $9/sh target instead of $5/shs.

Also, if you extend the IRR to 6/8 years, the IRR increases since the model expect the $NU will generate positive EVA (return over its cost of capital) for more than four years. I'll be more than happy to share my numbers once I'm comfortable with them.
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Giro Lino's avatar
$3.1m follower assets
$STNE update
Hi guys. Released my post on $STNE along the weekend.

All in, Stone will likely continue to face challenges in posting significant earnings expansion. First, the company suspended the origination in its credit business after issues with the receivables chambers, postponing monetization.

Second, Brazilian Central Bank has been increasing interest rates (+875bps in the cycle so far), pressuring Stone’s financial expenses and pass-through in prices.

Third, $STNE has been signalizing to the market higher selling expenses from now on. In my view, low-hanging fruits are over, so incremental merchants’ addition should come at higher costs.

Gathering the information provided by the large acquirer’s companies and the data provided by ABECS, the main highlights for 2021:

  1. New entrants are still gaining market share from incumbents (+200bps in the year). It’s interesting to notice, but Getnet lost market share throughout the year, even though the feedback I heard was that the company was going strongly in commercial propositions.

  1. $STNE and $PAGS were the main highlights. $STNE lost share in the first half of the year, but PAGS has shown significant share gain along the year.

  1. ABECS is pointing to a 30% growth in the industry TPV for 2021, versus the 24%expected by the beginning of the year. For 2022, ABECS expects another strong year, with a 24% growth (vs. 2021).

Keep in mind the Stone’s market share evolution over the past five years. I think the company will sustain the pace (+200bps) for the foreseeable future.

However, the company has been pointing out that the cost of acquiring customers has also been increasing.

Stone’s CAC (Customer Acquisition Cost) invests in hubs and POS hardware. Therefore, the increase, or decrease, in the D&A could foresee how aggressive the company is about future investments.

One might discuss that Stone is looking for a share greater than 200bps in 2022, and the actual CAC is the same, but I don’t see it this way. As we’ll discuss later on, Stone’s cash availability will be limiting its growth over the following years.

### Funding cost pressure
Unlike most companies, acquirers deploy massive capital into the pre-payment business. As a result, the reported balance sheet and the actual figures for cash and debt may diverge.

When an acquirer receives a demand to prepay money from merchants, it could use proprietary cash, issuing banks, or debt.

However, as the image above shows, the balance sheet doesn’t show the real impact when an acquiring company issues a bank for the pre-payment.

I don’t think that, formally, there is a name for this off-balance debt that is not in the Balance Sheet, so I named it Virtual Debt.

Channel Checks suggest that the tenor (length of time remaining before a financial contract expires) is between 50 and 65 days. So, considering that the period for a contract is 60 days, $STNE would have issued a ton of intra-quarter debt to fulfill its obligation to merchants.

Wanna continue the reading? Why don't you access my Substack and redeem a free trial coupon?
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