September 6, 2018 / 12:20 PM / 15 days ago

DAX newcomer Wirecard sees plenty more room for growth

ASCHHEIM, Germany (Reuters) - Wirecard, the German fintech company that has ousted Commerzbank from the blue-chip DAX index, has the potential to expand even more rapidly over the next decade, its chief executive said on Thursday.

Markus Braun, CEO of Wirecard AG, an independent provider of outsourcing and white label solutions for electronic payment transactions, during a Reuters interview at the company's headquarters in Aschheim near Munich, Germany September 6, 2018. REUTERS/Michael Dalder

Dynamic growth in its online payments business has helped Wirecard to double its share price this year it and underlined that momentum by supplanting venerable Commerzbank among the ranks of leading German companies.

CEO Markus Braun, hired in 2002 to turn around what was then a three-year-old startup that had been laid low by the dot-com crash, forecast that growth at the firm based in Aschheim, near Munich, would accelerate in the years ahead.

“Joining the DAX is just a step along the way,” the Austrian told Reuters in an interview on Thursday.

“I believe that, in the next 10 years, our growth dynamics will put the growth of the past 10 years comfortably in the shade,” added Braun, whose 7 percent stake in the business is now worth $1.8 billion.

It has been a transformational journey for Wirecard, which for years struggled to shake off a sleazy image as a payments provider for online porn and gambling sites, and has more recently come under attack by speculative short sellers that are under investigation by state prosecutors.

Now, Wirecard’s top-line growth is being driven by major deals with banks such as Credit Agricole that contributed to a 49 percent rise in revenues in the first half of the year and an upgrade in its earnings outlook.

Braun said business so far in the third quarter gave him confidence in Wirecard’s recently-raised forecast for 2018 earnings before interest, tax, depreciation and amortization (EBITDA) of 530 to 560 million euros ($616-$651 million).

In 2020, Wirecard expects to handle more than 215 billion euros in payments and to generate 3 billion euros in revenues.

Revenues in the first half of this year were 898 million euros, up 46 percent on the previous year.

The company is also upbeat on its mid-term profits outlook, forecasting an EBITDA margin of 30-35 percent that year, and that it will convert more than 65 percent of its free cash flow into profits.

TAKING ON THE BANKS

With a staff of less than 5,000 - a tenth that of Commerzbank - Wirecard offers ‘omnichannel’ payments solutions to merchants; risk management; real and virtual payment cards; and even has a German banking license.

These tailored solutions have helped Wirecard to increase its so-called take rate - the cut it takes on payment transactions - to 1.39 percent.

These are services that Germany’s banks, still reeling from the after effects of the global financial crash a decade ago, have been unable to match.

“Digitalization, modern payments systems are the future,” said Robert Halver, an analyst at Baader Bank. “That’s something that the established banks should be providing.”

Wirecard’s market value of $26.1 billion, is now double that of Commerzbank and recently eclipsed that of Deutsche Bank, which itself has just been ejected from the Eurostoxx 50 index of leading European stocks.

More payments deals with heavyweight business partners are in the works, said Braun.

“We believe that there will be many more such partnerships - not just in the banking sector,” he told Reuters.

“There’s insurance, and we are working in the field of technology with other big companies.”

These opportunities mean that, even though the global payments market is highly fragmented, Wirecard is focusing on organic growth rather than acquisitions.

“We’re concentrating on our own strategy - on our own growth story,” Braun said. Asked whether Wirecard had been approached by strategic investors, he said: “We are holding talks exclusively about operational partnerships.”

($1 = 0.8598 euros)

Reporting by Joern Poltz, Writing by Douglas Busvine; Editing by Maria Sheahan/Keith Weir

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