Nuvei stock bounces after company responds to short-seller report

Nuvei's stock (NVEI.TO)(NVEI) jumped as much as 15 per cent in early trading on Thursday, the day after the company responded to a short-seller attack calling it "intentionally misleading."

Shares of the Montreal-based payments company ended the trading day on Thursday at $77.59, an increase of six per cent but still down 37 per cent compared to Tuesday's close.

Nuvei's stock fell 40 per cent on Wednesday after Spruce Point Capital Management released a 119-page report saying the shares could fall as much as 60 per cent. Spruce Point criticized Nuvei's management team, questioned the company's acquisitions, and alleged that its financial disclosures are "weak."

Nuvei released a response to the report on Wednesday after the markets closed, reaffirming its financial outlook and its growth targets, which includes a goal of increasing revenue by 30 per cent over the medium term.

"Nuvei believes the recent report issued by a short seller is intentionally misleading and draws inaccurate conclusions, innuendo and character attacks on key executives, among numerous other issues," the company said in a statement.

"The personal attacks on Nuvei executives made by the short seller appear to have been made to distract from the company’s achievements and progress. The short seller admits that it stands to profit significantly from Nuvei’s stock price decline, at the expense of Nuvei’s shareholders, customers and employees."

The company said it remains focused on its strategy, and urged investors "not to make decisions based on the short seller report."

Spruce Point, a U.S.-based investment firm focused on short selling, said Wednesday that Nuvei shares could fall between 40 and 60 per cent and should not be trading at a premium to peers.

"Nuvei commands a premium valuation, but we believe it should trade at a discount to incorporate our documented concerns," Spruce Point said in its report.

Nuvei is a payments company that went public on the Toronto Stock Exchange in September 2020, marking the largest initial public offering in the technology sector last year.

Analysts react

Some analysts reiterated their positions on Nuvei after the release of the short-seller report.

BMO Capital Markets analyst James Fotheringham reiterated the share price target of $114. Because the price target represents a 97 per cent increase from Wednesday's close, Fotheringham also upgraded the stock from a "market perform" rating to "outperform".

CIBC analyst Todd Coupland maintained the "outperform" rating for Nuvei's stock, but adjusted the share price target from $160 to $76 "to align Nuvei's valuation at the low end of high-growth peers," including PayPal. Still, Coupland wrote in a note to clients that Spruce Capital's criticisms were "disingenuous" and not compelling.

"The vast majority of the document focused on the background of a number of existing and former Nuvei executives, before raising questions about the company's growth and acquisitions," Coupland wrote.

"We consider the first (and lengthiest) portion of the report to have been designed as an exhaustive character assassination, with many contentions that were disingenuous or immaterial to the operations of the company. We also didn't view its criticism of organic growth, cash flow and margins to be compelling."

Cowen analysts George Mihalos, Allison Jordan and Philip Caldwell said that the report from Spruce Point "creates opportunity" and to "take advantage of the weakness."

"The report principally cites concerns around previous business failures, disclosures and questions organic growth (though we see no actual proof refuting current growth rates), which in our view has little to do with the company’s recent performance since going public," the analysts wrote in a note to clients on Wednesday.

"We remain comfortable with the company's disclosure of pro-forma revenue growth since going public and continue to believe 30 per cent long-term organic revenue growth is achievable."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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