Shares in French online payments company Worldline (WLN) were suspended this morning after falling as much as 55% on lower earnings expectations for 2023.
At the time of writing, shares are down to €10.25, a precipitous 55.63% fall.
In a statement to the markets, the company had lowered its expectations citing a sudden deterioration in the economic environment, and particularly in Germany, where it has observed an increase in cybercrime that forced it to cancel several contracts.
"During the third quarter of 2023, some of our core countries experienced a macroeconomic slowdown, in particular the German market," it said.
"In these countries, consumers have started to allocate their spending more pronouncedly in non-discretionary sectors to the detriment of discretionary sectors, thus impacting our growth and profitability.
"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."
The payment processing company, which one of the largest players in Europe, now expects organic growth of between 6% and 7% for 2023 (compared to +8 to +10%), a gross operating surplus ("OMDA" in company jargon) of around €1.1 billion (i.e. a drop of 150 basis points compared to an increase of more than 100 basis points) and a free cash flow conversion rate of between 30% and 35% (compared to 46% to 48% previously).
For 2024, the company is targeting an improvement of €100 million in its gross operating surplus, but did not give any further details about how this would be achieved.
The decision to stop services with certain customers will result in a loss of turnover of €130 million in 2023, including €30 million in the second half and around €100 million during the first half of 2024. It also announced a €200 million cash cost savings in 2025 with "fast ramp-up during 2024."
During the third quarter, the company recorded a turnover of €1.18 billion, up 4.8% at constant scope and exchange rates (compared to a consensus of +7.2%), driven mainly by merchant services (+7.6%) while the other business lines recorded a contraction of respectively 2.9% (financial services) and 0.2% (mobility and transactional web services).
After these figures fell short of expectations, the Jefferies bank indicates that revision to full year guidance implies "Q4 organic growth of +2-5% vs. consensus of +8.4%."
"The initiated cost savings programs will mitigate the impact on OMDA line, but overall concern on a prolonged downturn will likely cause further uncertainty about recovery", it said in a note to investors.
After the profit warning from Adyen in the summer, investor sentiment in Worldline was already deteriorating.
In a separate note this morning, Citi analysts said that "buyside positioning has been negative into the results (based on our conversations); however, the miss and softer outlook was likely worse than many had expected and will drive consensus downgrades."
According to JPMorgan: "the new free cash flow for the year at the mid-point of the guided range would be 38% below current consensus. The [2024] OMDA guidance of €100 million improvement would result in [2024] earnings estimates cut by 16% and essentially kill the previous long-term guidance to [2024] that the market increasingly did not believe."
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