Nuvei stock plummets after becoming short-seller target

Nuvei Corp. (NVEI.TO)(NVEI) plunged as much as 56 per cent on Wednesday after a U.S.-based short seller set its sights on the Montreal-based company, saying shares could fall as much as 60 per cent.

Spruce Point Capital released a lengthy report on Wednesday that criticized Nuvei's management team, questioned the company's acquisitions, and alleged that its financial disclosures are "weak." Spruce Point, a U.S.-based investment firm focused on short selling, says Nuvei shares could fall between 40 and 60 per cent and should not be trading at a premium to peers.

"Spruce Point believes there is significant downside to Nuvei's share price as the company is overvalued on all financial metrics, and should trade at best in line with peer valuations, and at (worst) a material discount to reflect the numerous concerns we've documented in our report," the short seller wrote in its 119-page report.

"Nuvei commands a premium valuation, but we believe it should trade at a discount to incorporate our documented concerns."

Nuvei did not respond to a request for comment regarding the Spruce Point Capital report.

Nuvei is a payments company that went public on the Toronto Stock Exchange in September 2020, marking the largest initial public offering in the technology sector last year. The company's stock closed the day down nearly $50 at $73.12, representing a decline of 40 per cent.

'Short report creates opportunity'

Cowen analysts George Mihalos, Allison Jordan and Philip Caldwell wrote in a note to clients on Wednesday that the report from Spruce Point "creates opportunity" and to "take advantage of the weakness." The analysts rate Nuvei's stock as "outperform" and have set a price target of between $137 and $169.

"The report principally cites concerns around previous business failures, disclosures and questions organic growth (though we see no actual proof refuting current growth rates), which in our view has little to do with the company’s recent performance since going public," the analysts wrote.

"We remain comfortable with the company's disclosure of pro-forma revenue growth since going public and continue to believe 30 per cent long-term organic revenue growth is achievable."

Part of Spruce Point's report focuses on what it says are "substandard" and "insufficient" financial disclosures.

RBC Capital Markets analyst Paul Treiber, who has an "outperform" rating on the stock and a price target of $145, said in a note to clients Wednesday that while Nuvei's disclosures of operating metrics are less than its peers, "the company has started to provide additional disclosures." He also pointed to Nuvei's recent financial outlook in response to the Spruce Point report.

"Nuvei's outlook would suggest that the company believes the recent acceleration in growth is sustainable," Treiber wrote.

"Moreover, we believe growth is broad-based and not attributable to a single customer, given management's disclosure that no single vertical is greater than 20 per cent."

Spruce Point has a history of targeting Canadian companies. It recently released a report claiming Lightspeed Commerce's stock was overvalued, alleging that the company was not transparent about competitive pressures and gave investors too little information to understand organic growth. Lightspeed says the Spruce Point report was false and contained "numerous" inaccuracies. Spruce Point had also previously targeted Canadian Tire and GFL Environmental.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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