Spruce Point Releases Report Claiming Nuvei Carries Up To 60% Downside Risk

Investment firm Spruce Point Capital Management released yesterday a detailed report on Nuvei Corporation (TSX: NVEI) arguing the latter faces 40% to 60% long-term downside risk. The investment opinion comes after enumerating scathing allegations on the fintech firm, including reports of misrepresentation by the founder and CEO Philip Fayer.

In its report entitled “Fool Me Once, Twice, But Not Three Times”, the New York-based firm is warning investors that Nuvei’s correct share price should be $39.00 – $58.00 based on its “documented findings and concerns.”

Spruce Point also disclosed that it holds a short position in the Montreal-based e-payment platform.

The report enumerated in detail the information Fayer is allegedly not disclosing to investors, including not finishing his degree after claiming to have graduated from Concordia University and running a “failed” e-payment venture.

“Absent from any company disclosures is the fact that prior to [Nuvei’s predecessor] Pivotal Payments, Mr. Fayer ran failed company PaySystems, which collapsed and left many aggrieved merchants without funds and alleging theft and fraud,” the report read.

Among the alleged undisclosed information is the departure of Nuvei EVP of North American Partnerships Allan Lacoste after a lawsuit alleged his participation in a $100 million fraud. Chief management officers David Schwartz and Neil Erlick are also being called out for their failure “to disclose their previous executive roles at FireOne Group” whose parent company Optimal Group “forfeited $19 million in criminal proceeds following an agreement with the U.S. Department of Justice.”

The report also identified the company’s VP of North American eCommerce Moe Tassoudji as a codefendant with principals of Fiberline Companies, a company claimed by the Securities and Exchange Commission “a boiler room scheme.” The firm further alleged that Nuvei’s acquisition in 2018, Vantage Payments, is affiliated with Tassoudji and “known to service the adult film industry.”

Further to the investment firm’s researches, the founder of Vantage Payments has also been “embroiled in litigation related to TelexFree, described as one the world’s largest Ponzi schemes.” It also allegedly acted as a referral agent for Allied Wallet, a firm that settled charges “for assisting fraud schemes and taking $110 million from consumers.”

Spruce Point is also calling the fintech firm’s management to explain the materially expanded profitability of its European acquisitions, SafeCharge and Smart2Pay, around the time of the respective transactions. The report mentioned that the Canadian company “did not provide customary revenue contributions from SafeCharge” within a year after closing the acquisition, around the time it increased its profit margins from 24.5% to 45.1% despite its CEO describing the market as saturated. On the other hand, Smart2Pay saw an increase in net profit margins from 28.5% pre-acquisition to 49.2% post-closing despite “no changes in pricing from pre- and post-deal closing that would explain the profit increase.”

The investment firm is also questioning Fayer’s claim of Nuvei’s organic growth during his leadership, asserting that “between 2010 and 2018, the company experienced practically no growth.”

Spruce Point is announcing its investment opinion, believing signs of headwinds for Nuvei’s financial performance. “In addition to recently adopting a Clawback Policy for financial restatement, Nuvei is now revising revenue, operating, and financing cash flows without explanation,” stated in the report.

The firm concluded with the opinion that the e-payment platform should not be trading at a premium valuation to its industry peers.

“We believe it should trade at a discount to reflect our documented findings and concerns. As a result, we could see its share price correct by 40% – 60% ($39.00 – $58.00 per share),” summed the report.

Nuvei Corp last traded at $73.12 on the TSX, down 40.4% on the day.

Information for this briefing was found via the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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