14 November 2024 | 3:15AM EST

PagBank (PAGS): 3Q24 results: Guidance reiterated, with potential

upside to TPV and net income

Earnings beat on healthy TPV and prepayment revenues, but lower take rates Tito Labarta
+1(212)357-6760 | [email protected]
Recurring net income of R$571mn was up 5% qoq (+30% yoy), 5% above GSe and Goldman Sachs & Co. LLC

3% above company consensus. In our view, PagBank posted solid growth trends in Tiago Binsfeld, CFA
+55(11)3371-4574 |
payments TPV (mainly large merchants) driving market share gains and continued to [email protected]
Goldman Sachs do Brasil CTVM S.A.
show positive trends in its banking business. On the other hand, take rates Beatriz Abreu, CFA
continued to compress and costs and expenses were modestly higher than +1(212)357-0455 |
beatriz.bomfi[email protected]
Goldman Sachs & Co. LLC
expected. The company also benefited from a lower effective tax rate of 12.7% (from
14.8% in 2Q24), but pre-tax earnings still beat GSe by 6%. Finally, the company Lindsey Shema
+1(801)578-2673 |
[email protected]
reiterated its guidance for 2024, but noted potential upside to TPV and net income Goldman Sachs & Co. LLC
guidance. The stock was up 6% in the after-market, which we think likely reflects the
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beat and TPV market share gains.

Guidance reiterated, but with possible upside

During the conference call management reiterated its 2024 guidance, mentioning
that TPV and net income could potentially beat the guidance. Indeed, annualized
9M24 net income of R$2.2bn is running in line with top of the guidance of
R$2.1-2.2bn, while annualized TPV of R$497bn is in line with the middle of the
guidance range of R$480-505bn, but with 4Q24 TPV likely higher than 1Q24 and
2Q24. PagBank expects the positive trends for MSMB TPV (+6% qoq, +26% yoy) to
continue into 4Q24 and emphasized the importance of the banking segment to
diversifying revenue streams, with the banking business now representing 18% of
total gross profit, up from 14% in 3Q23.

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Valuation appears attractive, given the growth outlook
PagBank is trading at 6.3x 2025E P/E, below Stone at 8.1x. We expect lower
2023-26E EPS CAGR of 14% vs. 23% at Stone. However, valuation looks attractive
relative to global peers at 17.8x 2025E P/E with an expected EPS CAGR of 16%. Our
PT of $14 is derived from a 3-stage DCF with COE of 14.7%, second stage growth
of 12% and terminal growth of 6%, and implies the stock should trade at 10.0x
2025E P/E. Key risks include lower take rates, slower volume growth, and
competitive pressures.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
 Goldman Sachs PagBank (PAGS)

3Q24 Earnings review

Strong TPV and pre-payment trends continue in 3Q24, partly offset by lower take rates
Net revenues (with discounting) improved 6% qoq (+20% yoy), and were 4% above
GSe, as better-than-expected volumes were partly offset by lower take rates. Indeed,
total payment volume (TPV) of R$136.3bn increased 10% qoq (+37% yoy, 5% above
GSe), with MSMBs up a solid 6% qoq and 26% yoy, but large accounts up an even
stronger 18% qoq and 62% yoy. Large merchants now represent 35% of TPV from 30%
in 3Q23. Receivables discounting revenues jumped 16% qoq and were 11% above GSe.
Nonetheless, take rates fell again by 6bps qoq to 1.73%, the lowest level ever, given the
ongoing spike in large merchant volumes.

Costs and expenses higher than expected

Cost of services were up 5% qoq (+23% yoy) and 5% above GSe, given higher
interchange and card scheme fees. Operating expenses also increased 5% qoq (+19%
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yoy), 8% above GSe, mainly on personnel (+6% qoq, +35% yoy) and other expenses
(+5% qoq, +13% yoy) in the quarter, while marketing expenses were steady but
remained elevated (+1% qoq, +60% yoy). Meanwhile, total losses increased 6% qoq
(-28% yoy), as chargebacks were up 21% qoq, but offset by lower credit losses down
25% qoq to R$28mn. Interest expenses increased 12% qoq and 6% above GSe, given
stronger volumes and despite stable deposits. Indeed, deposits were roughly
unchanged, as checking accounts fell 9% qoq, offset by growth in CDs (+5% qoq) and
interbank deposits (+3% qoq). Notably, the average cost of deposits fell to 92% of the
CDI from 96% in 2Q24.

Credit growth and NPLs maintain positive trend

Active clients were stable qoq at 17.7mn with the activation rate relatively steady at 55%

eaea7e321a2e4add9ca0431a47d826fa
(from 56% in 2Q24). Banking revenues totaled R$495mn, +14% qoq (+52% yoy), on
better floating and credit revenues. The credit portfolio was up 11% qoq to R$3.2bn,
with secured loans now representing 85% of total loans (from 80% in 2Q24 and 60% in
3Q23). Positively, the NPL ratio declined further to 2.5% (from 3.2% in 2Q24 and 10.7%
in 3Q23) given the mix shift to secured loans. Separately, D&A/POS write-offs of
R$429mn were up 4% qoq (+9% yoy), explained by depreciation of POS devices and
R&D amortization. Finally, the company has bought back R$472mn in shares this year,
representing 3% of its market cap, and has a cash balance of R$5.6bn, representing
36% of its market cap.

14 November 2024 2
 Goldman Sachs PagBank (PAGS)

Exhibit 1: Detailed 3Q24 results for PagBank

In R$ mn 3Q23 2Q24 3Q24E 3Q24A qoq yoy Actual/GSe
Net revenues 2,269 2,312 2,284 2,260 -2% 0% -1%
Net revenues (with discounting) 4,026 4,557 4,635 4,831 6% 20% 4%
Cost of services (1,508) (1,761) (1,770) (1,851) 5% 23% 5%
Gross Profit 761 551 514 409 -26% -46% -20%
Total expenses (794) (906) (875) (949) 5% 19% 8%
EBITDA (33) (355) (361.0) (540) 52% 1517% 50%
EBITDA (with discounting) 904 1,026 1,078 1,068 4% 18% -1%
Depreciation and amortization (346) (391) (458) (413) 6% 19% -10%
Receivables discounting 1,365 1,679 1,750 1,950 16% 43% 11%
Interest income 66 132 128 127 -4% 93% -1%
Interest expense (820) (863) (912) (964) 12% 18% 6%
Income before taxes 557 635 620 655 3% 17% 6%
Effective tax rate 20.9% 14.8% 12.0% 12.7% -208 bp -814 bp 74 bp
Recurring net income 441 542 546 571 5% 30% 5%
Extraordinary items (30) (38) (38) (40) 5% 33% 5%
Reported net income 411 504 508 531 5% 29% 5%

Recurring EPS (R$) 1.34 1.64 1.66 1.73 5% 30% 5%

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Reported EPS (R$) 1.25 1.53 1.54 1.61 5% 29% 5%

Key operating metrics

Total card transaction value 99,800 124,400 129,686 136,300 10% 37% 5%
MSMB TPV 70,100 83,600 87,152 88,300 6% 26% 1%
Large Merchant TPV 29,700 40,800 42,534 48,000 18% 62% 13%
Total merchants in network (mn) 6.7 6.4 6.5 6.4 0% -4% -2%
Net merchant adds (mn) (0.100) (0.100) 0.099 - nm nm nm
Transaction value per merchant (R$) 14,785 19,287 20,108 21,297 10% 44% 6%
Transaction yield 2.57% 2.10% 1.99% 1.85% -25 bp -72 bp -14 bp
Net take rate 2.13% 1.79% 1.75% 1.73% -6 bp -40 bp -2 bp
PagBank clients (mn) 16.8 17.7 17.5 17.7 0% 5% 1%
Credit portfolio 2,462 2,894 3,154 3,198 11% 30% 1%
Deposits 21,569 34,243 36,371 34,202 0% 59% -6%

Margins and profitability

eaea7e321a2e4add9ca0431a47d826fa
Gross margin 33.5% 23.8% 22.5% 18.1% -574 bp -1543 bp -440 bp
EBITDA margin -1.5% -15.4% -15.8% -23.9% -851 bp -2241 bp -808 bp
EBITDA margin (with discounting) 22.4% 22.5% 23.3% 22.1% -42 bp -35 bp -116 bp
Net margin 19.4% 23.4% 23.9% 25.3% 185 bp 585 bp 138 bp
Net margin (with discounting) 10.9% 11.9% 11.8% 11.8% -7 bp 87 bp 4 bp

ROE 13.9% 15.4% 15.0% 15.7% 24 bp 178 bp 68 bp

ROA 3.9% 3.4% 3.2% 3.4% -10 bp -56 bp 13 bp

Source: Company data, Goldman Sachs Global Investment Research

14 November 2024 3
 Goldman Sachs PagBank (PAGS)

Conference call highlights

Strong cards TPV growth in addition to PIX TPV. PAGS provided additional disclosure
on the proportion of PIX in its total TPV volumes. According to the company, 15% or
R$20.4mn of its total TPV was related to PIX, up from 11% of total in 2Q24 and 4% in
3Q23. While PIX TPV grew 49% qoq and 412% yoy, cards TPV still showed strong
expansion of 5% qoq and 21% yoy. Additionally, management highlighted that the
robust growth in MSMB TPV was attributed to previous hub investments and better
product offering for the segment, and is seeing similar trends for MSMB TPV in 4Q24.

Banking business fundamental to diversification of revenue stream. The company

mentioned it continues to focus credit growth in secured loans. While it is slowly
targeting and testing some unsecured products to offer to lower risk clients, it believes
that stronger growth in unsecured loans should happen at some point in the future. Still,
management highlighted the diversification that the banking business brings to the
company. Indeed, PAGS highlighted that the banking business contribution to gross
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profit was 18% in 3Q24, up from 14% in 3Q23, with payments at 82% and 86%
respectively.

Deposit balance impacted by monthly seasonality. Management explained that the

9% sequential decrease in checking accounts, which led to stable deposits in the
quarter was mostly due to seasonal factors, with 3Q24 ending on a Monday, which
typically is a day of the week with more outflows. PAGS highlighted that on a daily
average balances base, deposits increased.

Gaming sector exposure. Management mentioned that part of its online volumes
included in LMEC are related to companies in the gaming sector, all of which are
regulated. While the company mentioned that volumes related to gaming are accretive,
it highlighted that as a percentage of the bottom line the exposure to gaming is not

eaea7e321a2e4add9ca0431a47d826fa
meaningful and it is close to low single digits.

Buyback program update. PAGS has fully executed its first buyback program on
August 29, 2024, purchasing US$250mn. The company has already executed US$40mn
of its second buyback program launched on the same day, 20% of the US$200mn total.
Regarding further share repurchases, management mentioned that it not in a rush to
complete the program and it will continue to evaluate market conditions and
opportunities to invest in the company.

14 November 2024 4
 Goldman Sachs PagBank (PAGS)

PAGS 12m Price Target: $14.00 Price: $8.09 Upside: 73.1%

Buy GS Forecast
12/23 12/24E 12/25E 12/26E
Market cap: $2.7bn Revenue (R$ mn) 9,027.2 9,275.1 9,574.2 10,270.9
Enterprise value: $2.0bn EBITDA (R$ mn) 3,545.8 4,235.0 4,647.3 4,973.1
3m ADTV: $58.6mn EBIT (R$ mn) (1,461.5) (2,882.6) (3,017.8) (3,039.5)
Brazil EPS (R$) 5.37 6.64 7.34 8.01
Latin America Financials P/E (X) 8.8 7.1 6.4 5.9
M&A Rank: 3 EV/EBITDA (X) 2.7 2.7 1.6 1.5
FCF yield (%) 21.5 (14.4) 25.7 0.8
Dividend yield (%) 0.0 0.0 0.0 0.0
Net debt/EBITDA (X) (1.7) (0.9) (1.7) (1.6)

6/24 9/24E 12/24E 3/25E

EPS (R$) 1.64 1.66 1.76 1.44

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 13 Nov 2024 close.
For the exclusive use of [email protected]

eaea7e321a2e4add9ca0431a47d826fa

14 November 2024 5
 Goldman Sachs PagBank (PAGS)

Disclosure Appendix
Reg AC
We, Tito Labarta, Tiago Binsfeld, CFA, Beatriz Abreu, CFA and Lindsey Shema, hereby certify that all of the views expressed in this report accurately
reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is
or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

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The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
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Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
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For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.

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Disclosures
The rating(s) for PagBank is/are relative to the other companies in its/their coverage universe: B3, BB Seguridade, BTG Pactual, Banco
Santander Chile, Banco de Chile, Banco de Credito e Inversiones, Banco del Bajio, Banco do Brasil, Bancolombia, Bradesco, Caixa Seguridade,
Credicorp, Gentera SAB de CV, Grupo Financiero Banorte, Grupo Financiero Inbursa SA, IRB(Re), Inter & Co., Itau Unibanco, Itausa, Nu Holdings,
PagBank, Patria Investments, Porto Seguro SA, Qualitas, Regional, Santander Brasil, Stone, XP Inc, dLocal

eaea7e321a2e4add9ca0431a47d826fa
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered
by Goldman Sachs Global Investment Research and referred to in this research.
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the month end preceding this report: PagBank ($8.09)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: PagBank ($8.09)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: PagBank ($8.09)
Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: PagBank ($8.09)
Goldman Sachs makes a market in the securities or derivatives thereof: PagBank ($8.09)

Distribution of ratings/investment banking relationships

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Buy Hold Sell Buy Hold Sell
Global 49% 34% 17% 63% 57% 40%

As of October 1, 2024, Goldman Sachs Global Investment Research had investment ratings on 2,988 equity securities. Goldman Sachs assigns stocks
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Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.

14 November 2024 6
 Goldman Sachs PagBank (PAGS)

Price target and rating history chart(s)

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14 November 2024 7
 Goldman Sachs PagBank (PAGS)

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