Worldline: Placing Group Under Review After Negative Surprise of Merchant Terminations

We are placing Worldline under review after the payment provider lowered revenue guidance for 2023 and announced the termination of merchant contracts in Germany. Worldline posted 4.8% organic revenue growth in the third quarter, a material slowdown from the 9.3% growth posted over the first half of 2023. The culprits were weak financial services performance (down 2.9%) as well as a relatively poor showing from merchant services (up 7.6%). Merchant services is Worldline’s largest segment and has been its core growth driver (up 13.1% in the first half of 2023). The financial technology firm cited a sudden change in consumer behavior in Germany as the core driver behind its disappointing merchant services segment performance. The dramatic share price reaction is partially explained by this unexpected and sharp trend change revealed on Oct. 25. However, we believe that the termination of some online merchants that Worldline undertook since the second quarter of 2023, but only made public on Oct. 25, is of greater concern to investors. We plan to update our model and fair value estimate shortly. We see heightened risk around the merchant relationship terminations and also believe management lost credibility on Oct. 25 by not giving any form of reliable guidance and outlook. None of this bodes well for a quick reversal of the poor Worldline share price performance recently.