Renaissance Capital Highlights Value in Stripe, Paystack Deal

Analysts at Renaissance Capital (RenCap) have estimated the perceived value realised by Nigeria’s start-up, Paystack in the recent announcement of its acquisition by Stripe, an American financial services and software company.

The deal was put at over $200 million.

RenCap estimated in a report on the transaction obtained yesterday that the deal valued Paystack at about 14 times of the fintech’s annualised gross revenue in 2020 and 40 times its net revenue.

The financial advisory firm stated that in Nigeria, the merchant service charge (MSC) is capped at 1.5 per cent, which is shared along the payments value chain.

“Paystack’s niche is in online payments, processing over half of Nigeria’s online transactions. It’s used by 60,000 businesses in Ghana and Nigeria for online and offline payments and has launched a pilot in South Africa.”

In reviewing the implications for Ecobank Transnational Incorporated (ETI) and Guaranty Trust Bank (GTB) payment valuations, it stated: “We have included the 14 times implied gross revenue multiple in our Africa fintech valuation sheet and updated our pro-forma valuation for ETI and GTB’s payments businesses.

“We look at valuations for Interswitch/Visa, Network/Abraaj, DPO/Network, Paystack/Stripe, MPesa, Network and Fawry, and calculate average revenue multiples of 13 times. Applying these to ETI’s first half of 2020 annualised revenues, assuming five per cent and 10 per cent payments revenue contributions (that is $73 million and $154 million), we estimate that its payments business could be worth between $950mn to $2bn, i.e. 3.4-7x larger than ETI’s current market capitalisation of $282 million,” it stated.

Applying same multiple to GTBank’s full year 2019 digital income ($51 million), this implied a valuation range of between $666 million- $1 billion, which was 29 to 44 per cent of its current market capitalisation, with a mid-point of $845 million. This represented 36 per cent of GTBank’s current market capitalisation.

“From our discussions with management, we believe that its own estimated valuation of this business is at least double our base-case estimate. In practice, for both banks, we would still need to adjust the revenue number as not all of what’s currently reported/assumed will transition if a full carve out is done,” the report added.

The deal came few months after Stripe announced it had secured another $600 million in funding.

The US-based company had explained that the African internet economy was expanding quickly, with online commerce in the region growing at 21 per cent year-over-year, which was said to be 75 per cent […]

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