With the payments sector on fire, Wirecard AG (WCAGY)(WRCDF) remains a relatively unknown stock. The recent deal for Worldpay (WPYGY), top payments processor in Europe, could draw more attention to the German-based payments processor and the general sector. 

Though the stock is up substantially in the last year, Wirecard has seen fast growth unlike some of the other European payments processors and has built up growth catalysts outside of Europe. The stock appears to have several paths to a higher stock price without needing a buyout offer. 

European Payments Deals 

Vantiv (VNTV) agreeing to acquire the top payments processor in Europe for $9.9 billion leaves Wirecard as the largest remaining payments processor. WorldPay was once part of the Royal Bank of Scotland until the bank was forced to sell in during the financial crisis in 2010. Interested parties for Worldpay apparently included JPMorgan Chase (JPM) among others through the large U.S. bank downplayed the interest. 

According to the Daily Telegraph, Europeans are quickly moving to a cashless society with a third already signaling a desire to only pay with cash. In fact, a cafe owner apparently had no problems with customers when shifting to a cashless system from one where roughly 30% of customers previously paid with cash. The business owner quickly went from a trial to fully implementing the cashless system due to the success. 

Now apparently, Blackstone (BX) and CVC Capital Partners are teaming up to make an offer for British online payments processor Paysafe (NVAFF). The payments provider apparently had revenues of $1 billion last year and the Blackstone group has offered $3.7 billion in a preliminary bid. Paysafe currently trades above that price as the market likely expects a sweetened bid. At the same time, Danish payment services firm Nets has appeared in the news as being approached by potential buyers. 

Don't be surprised if Wirecard gets some interest, but the reason to hold the stock is for the long-term growth. 

About Wirecard

This is where the positioning of Wirecard comes into play. The company hasn't been content being one of the top payment processors in Europe. In the last year or so, the company has bought companies in the U.S. and emerging markets making Wirecard more global. After Q1, the company listed a business that includes 29,000 large and medium sized merchants and approximately 160,000 small sized merchants around the world.

The Citigroup Prepaid portfolio deal closed in March providing the company an entry into the U.S. market. Other deals set Wirecard up for expansion and decades of growth in South Africa and APAC. 

What really sets Wirecard apart from the other legacy payment providers is that this company is truly focused on the digitizing of payments. From either cash payments to point-of-sale transactions, Wirecard is focused on a fully end-to-end digitalized platform. The company has integrated with Apple Pay in Spain and other European countries to provide a fully digitized mobile payment solution, as just one example of the solutions offered by the company. 

Wirecard suggests that around the globe only 15% of all transactions are electronic. The company goes even further to suggest that only 6% to 7% of all electronic transactions are being fully digitized providing the long-term growth opportunity. 

The focus on digital payments and several acquisitions is what has Wirecard on a solid growth trajectory. The company had a forecast for EBITDA reaching EUR 400 million this year. Just about all key metrics grew roughly 30% when the payments processor reported Q1 earnings towards the end of May and the company provided preliminary numbers for Q2 last week where the EBITDA guidance was upgraded to a high of EUR 406 million. All of the key growth metrics exceeded 30% growth over last year. 

2020 Vision 

Where the story gets interesting is that these catalysts set up the 2020 Vision. While looking too far into the future can be dangerous, Wirecard has the positioning in the dynamic payments market to achieve these goals. 

2020 Vision Goals:

• Transaction volume > EUR 190 billion
• Revenue > EUR 2.5 billion
• EBITDA margin - 30-35%
• FCF conversion to EBITDA > 65% 

The preliminary Q2 numbers calculates to an EBITDA margin of 28% suggesting plenty of margin expansion in the next couple of years. A lot of this growth in margins comes due to larger scale outside Europe where margins are higher. The payments processor previously detailed an average transaction margin in Europe of only 1.3% while outside Europe jumps to 2.1%. 

The emerging markets like Brazil, India, and APAC offer the higher growth rates which make the goals of hitting those 2020 targets much more feasible. 

Takeaway

The key investor takeaway is that the payments company in Europe continues to thrive. Wirecard reported strong Q2 numbers and raised EBITDA guidance for the year. The sector is hot with the stock surging recently. One might want to wait for a dip to own Wirecard, but the key to understand is that the company isn't a dull, stodgy European payments provider having expanded globally setting up plenty of catalysts to reach the 2020 targets.