PagSeguro Digital Ltd. (PAGS): A Bull Case Theory

PagSeguro Digital Ltd. (PAGS), a Brazilian fintech founded successful 2006 and IPO’ed in 2018, provides outgo processing for integer and carnal merchants, alongside integer banking and fiscal services for individuals and businesses. Despite beardown humanities growth—with nett income and gross CAGRs of 15% and 27% from 2018–2024, respectively—the banal trades astatine a P/E of ~7 and adjacent publication value, signaling a wide borderline of safety. The company’s profitability is highly delicate to Brazilian involvement rates, which presently basal astatine 15%, arsenic its prepayment work requires backing to beforehand merchant payments.

Each 1% drop-in rates could summation yearly pre-tax profits by ~$60 million, highlighting imaginable upside from expected complaint cuts successful aboriginal 2026. PagSeguro maintains a beardown currency presumption of ~$1.8 cardinal aft backing liabilities, reflected successful a Basel Ratio of 30% and ROAE of ~14–15%. Management has been actively returning superior via buybacks and dividends, with a full expected superior instrumentality output of 16% successful 2026, alongside guidance for nett income maturation of 11–15% successful 2025. Over the longer term, absorption expects EPS CAGR of >16% and gross nett CAGR of >10% done 2029, with a rapidly expanding recognition portfolio.

Risks see contention from banks, fintechs, and the increasing adoption of PIX, Brazil’s instant outgo system, which could trim interest income and the request for prepayment services. While marketplace stock successful outgo processing has somewhat declined owed to interest repricing, PagSeguro benefits from its wide work ecosystem and the backing of UOL, which controls 85% of voting power, providing strategical stability. Overall, PAGS offers a compelling risk/reward, with undervaluation, beardown superior returns, macro tailwinds, and maturation imaginable successful some payments and integer banking.

Previously we covered a bullish thesis connected PagSeguro Digital Ltd. (PAGS) by The ROI Club successful November 2024, which highlighted its capital-light model, beardown ROIC, integer payments growth, and expanding recognition portfolio. The banal has appreciated astir 23.87% since our coverage, arsenic the thesis played out. The thesis inactive stands, portion KraticCapital shares a akin presumption but emphasizes involvement complaint sensitivity, currency position, and PIX-related risks.