Paysafe: Solidly Profitable With High Margins

seekingalpha11-21

The risk-reward proposition for both PSFE common equity and warrants is highly attractive.Given the revenue growth and margin expansion potential of the business, PSFE common equity, currently sized ...

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Paysafe (NYSE:PSFE) is a payment technology company catering to merchants in Online Gaming & Betting, Travel & Leisure, Retail & Hospitality industry verticals. It came public as a SPAC in 2020 and experienced shareholder abandonment and forced selling over the next 2 years – a proverbial baby thrown out with the “SPAC Crash” bathwater. Our knowledge of the payment and financial technology industry led us to form a differentiated opinion from those rushing to exit, and we were happy to purchase their shares in both the common equity and warrants. The underlying business of PSFE is growing, solidly profitable with high margins, and generates healthy amounts of free cash flow. Leverage is high, but the debt is covenant lite, and 90%+ of the principal value is not due until after 2027. The risk-reward proposition for both PSFE common equity and warrants is highly attractive. Given the revenue growth and margin expansion potential of the business, PSFE common equity, currently sized at ~3% of NAV, is conservatively worth ~$50+/share vs. our cost of ~$13.50/share. We also hold a small position in PSFE warrants, currently sized at 0.2% of NAV. These warrants are essentially very attractively priced inflation hedges for our portfolio. In a scenario where global price inflation is untamed, PSFE would experience a strong tailwind given its ad valorem revenue model (% of $ transaction volume), leading to topline growth, margin expansion, and much higher free cash flow generation. Its high debt load becomes easier to repay and would function as a compressed spring for the equity price to explode higher, bringing the $138/share warrant strike price within reach. $1- 2/share in the money would equate to ~50 to 100X+ return on the warrant currently trading at ~$0.02/share, thus providing us with an extremely attractive inflation hedge.  Disclosure * Unaudited, net return figure calculation assumes 2% per annum management fee, pro-rated and deducted monthly from performance of the portfolio manager’s taxable separate account which does not pay management or performance fees. This separate account most accurately reflects the long-term investment strategy of Marram Investment Management. Remaining separate accounts were purposefully omitted as they may deviate from the strategy due to fee structure, custodial & trading expenses, fund transfer & order timing, margin & trading capabilities, tax considerations, and other account restrictions. Returns for each separate account may differ. Please refer to your account statements for actual net return figures. Returns presented for S&P 500 include dividend reinvestment. While the S&P 500 is a well-known and widely recognized index, the index has not been selected to represent an appropriate benchmark for Marram’s investment strategy whose holdings, performance and volatility may differ significantly from the securities that comprise the index. Investors cannot invest directly in an index (although one can invest in an index fund designed to closely track such index). Historical performance is not indicative of future results. An investment is speculative and involves a high degree of risk and possible loss of principal capital. All information presented herein is for informational purposes only. No investor or prospective investor should assume that any such discussion serves as the receipt of personalized advice from Marram. Investors are urged to consult a professional advisor regarding the possible economic, tax, legal or other consequences of entering into any investments or transactions described herein. A list of all recommendations made by Marram within the immediately preceding period of not less than one year is available upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on this list. Specific companies or securities shown are meant to demonstrate Marram’s investment style and the types of companies, industries, and instruments in which we invest, and are not selected based on past performance. The analyses and conclusions include certain statements, assumptions, estimates and projections that reflect various assumptions by Marram concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies, and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, assumptions, estimates or projections, or with respect to any other materials herein.  Click to enlarge  Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.  Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485812614"}