Worldline's Share Price Drops on Q2 Results, but We See Opportunity

Narrow-moat Worldline reported first-half revenue of EUR 2.3 billion, flat on an organic basis. On these results, the shares have dropped around 8% as of this writing. We think the market had expected a faster revenue recovery from the lows of 2020, and we believe that commentary around the potential retention or divestment of Worldline’s hardware business was not well received. We are less worried about either of these two concerns. Indeed, we increase our fair value estimate to EUR 91 per share from EUR 84, albeit primarily to adjust for the time value of money since our last model update. Overall, the quarterly and first-half performance was well in line with our expectations. Additionally, our thesis resolves around long-term growth drivers in the European payment space, such as the shift from cash to card payments and banks increasingly outsourcing and divesting payment activities. While the recovery from the pandemic does introduce near-term uncertainties, we think the long-term trajectory of Worldline is unchanged. The shares look undervalued.