(News Bulletin 247) – The payments specialist has drastically revised its outlook for the current financial year downwards while its growth slowed down significantly in the third quarter.

Tough week for Worldline. The French specialist in payment services had already fallen on the stock market on Monday (-2.3%), penalized by the rise in bond rates but also by an outage that occurred over the weekend on one of its platforms. This prevented card payments at certain large clients such as McDonald’s or Ikea.

But this decline is out of all proportion to the plunge that the stock suffered this Wednesday. Long reserved for the decline, the action collapsed by 56% around 10:40 a.m., obviously signing the biggest drop in the CAC 40.

Worldline is on track to record a historic drop on the Paris index over a single day. As far as we can remember, the most memorable losers so far have been Alcatel with -38.4% in 1998 and more recently Alstom earlier this month (-37.58%).

This is because the announcements made by Worldline are enough to shake up market perception. The company published activity well below expectations in the third quarter, drastically revised its forecasts for this year, modified its trajectory for 2024, and launched a savings plan of 200 million euros.

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A resounding warning on results

Invest Securities evokes a “very big warning on 2023-2024 results” after a “weak” third quarter, which will “raise a lot of questions, especially given the confidence displayed by management at the end of July on its medium-term plan” .

“After a good start to the year, we entered a second half where the global economy began to deteriorate, particularly in Germany. This development is reflected in the performance of our third quarter, despite satisfactory commercial results in the merchant services division. In this context, we have decided to revise our 2023 objectives,” explained Gilles Grapinet, CEO of Worldline, quoted in a press release.

Worldline remains a group whose activity is closely linked to household spending volumes and therefore consumption. In addition, Worldline operates in a fixed cost industry where revenues are generated via small commissions but on gigantic transaction volumes. In other words, a downturn in the economy can easily cause its profitability to waver.

Although it seeks to diversify geographically, Worldline is historically very present in the so-called “DACH” region, that is to say Germany, Switzerland and Austria. However, Germany is experiencing an economic recession, with the IMF anticipating a decline in its GDP of 0.5% this year.

Gilles Grapinet, in a conference call with analysts, also cited an acceleration in the shift in consumer behavior, which is redirecting consumer spending from discretionary to non-discretionary goods. “What in our business penalizes both growth and profitability and we must take this into account,” he explained. “We do not gain the same thing when consumers go to a hard discounter rather than to a restaurant,” added Marc-Henri Desportes, the group’s deputy general manager.

“We are facing more difficulties than we had anticipated until recently,” added Gilles Grapinet, then referring to “a sudden change”.

Growth almost halved

This deteriorating situation is reflected in Worldline’s activity. In the third quarter, the group’s revenues certainly increased by 4.8% on a comparable basis. But this progression was divided by almost two compared to that of the previous quarter (+9.4%).

Its main division, payment services offered to merchants, showed a clear slowdown in growth, of 7.6% on a comparable basis, compared to 13.5% in the previous quarter. This increase is also far from the 10% expected by analysts’ consensus, according to Stifel.

Worldline’s activity was also penalized by the group’s decisions to abandon certain merchant services activities for regulatory issues.

“Faced with the general rise in cybercrime, the emergence of new fraudulent behaviors and the tightening of regulatory directives and market constraints, we have tightened our risk appetite policy. Consequently, we have stopped in an orderly manner our services to certain merchants for which the associated costs and potential risks were not consistent with our revised requirements,” the company explained.

At the end of this disappointing quarter and taking note of the new market context, Worldline has slashed its forecasts for this year. The group now expects an increase in its revenues on a comparable basis of between 6% and 7%, compared to a range of 8% to 10% previously.

“However, the most surprising developments concern profitability and cash conversion,” judges the independent research firm AlphaValue.

The gross operating surplus margin is expected to fall by 150 basis points (1.5%) while the group previously expected an increase of 100 basis points. Finally, the conversion rate of gross operating surplus into cash flow is expected between 30% and 35% compared to 46% to 48% previously.

Another screw-up for the payments industry

The group has also drawn a line under its previous objectives for 2024. “Our 2024 trajectory will be adjusted with the publication of our 2024 objectives in February 2024 to take into account in particular market conditions and Power24,” announced Worldline.

“Power2024” is the name that Worldline has given to its plan which is expected to generate 200 million in full-year cash savings for 2025. This program could have a one-off cost of up to 250 million euros.

Worldline, however, estimated that its growth should accelerate from the second half of 2024 and that its gross operating surplus (EBO) should increase by 100 million euros next year. “This implies an EBO of 1,210 to 1,220 million euros, which means that the consensus figures would be revised downward by around 15 to 17%,” calculates Stifel. In the end, the publication is “much worse than feared”, scathes the bank.

Today’s stock market massacre for Worldline comes at a time when the payments sector was already unloved by the market, with Worldline and its Italian competitor Nexi having suffered a violent contraction in their stock market multiples in recent years. This summer, the Dutch Adyen also experienced heavy market punishment on the Amsterdam Stock Exchange (-39%) after results below expectations.

We will also see if the dung beetle dive this Wednesday will not whet the appetites of predators. Certainly, Bpifrance is a 7.6% shareholder in Worldline but with a free float of more than 70% and a scrappy valuation, the interests of investment funds, which according to Bloomberg are already interested in Nexi, risk d ‘be revived.