Ingenico VS Verifone 2016

In spite of a solid Q1 beat, VeriFone (NYSE:PAY) had to lower its FY15 guidance last night (revenue of $1.99-2bn and EPS of $1.78-1.82, below a consensus of $2.03bn and $1.90) as it factored in material FX headwinds and continued weakness in Russia. That said, we believe the company's outlook has never been brighter.

Indeed, it looks like the upgrade/replacement cycle of Point-of-Sale terminals in North America (33% of group revenue) is still in its early stages as VeriFone commented during the conference call that the U.S. will be only 40% EMV (chip-and-PIN cards) capable in 2015 vs. 24% in 2014.

While many investors have been aware of the company's huge 2015 revenue opportunity, it is now quite clear that the revenue momentum will remain impressive in 2016 and 2017 as many merchants have not yet adopted EMV- and NFC-enabled devices and will have to make the move soon. As a reminder, merchants using non-EMV compliant devices will assume liability for fraudulent transactions from October this year.

This promising market outlook suggests VeriFone's current strong growth in North America (+31% in Q1 after +20% in Q4) is sustainable. This, combined with strong growth as well in Latin America and Asia (+ 15% and +28% at constant FX in Q1) and, say, mid-single digit growth in Europe (37% of group revenue, only 4% revenue growth at constant FX in Q1 due to Russia), points to at least mid-double digit revenue growth over 2015-17.

As mentioned above, FX will be a major headwind this year (reported growth was 11% in Q1, constant FX growth was 17%) but hopefully, most FX headwinds will disappear by Q1 next year and won't drag down reported numbers in the future.

Importantly, this healthy revenue outlook comes with both strong financial discipline (flat opex in Q1, leading to a 220bps margin expansion to 14.4%) and some financial leverage (60% gearing), hinting at a 20-30% earnings growth power in coming years.

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