Markus Braun’s business model — and his personal wealth — is highly dependent on the decline of cash, yet the chief executive of German payments company Wirecard admits he still cannot live entirely without physical money.
“I try to live as cashless as possible but still have a very limited amount on me,” said Mr. Braun, who is also the largest shareholder of the high-flying tech group.
Yet when it comes to tipping, even the man whose grand vision is to make “payments invisible” still uses cash.
Wirecard’s share price has more than doubled this year, as it has upped its guidance several times. This has catapulted the company with its €1.5bn of sales and 5,000 employees into the Dax index, the elite club of Germany’s 30 biggest quoted companies.
Commerzbank, Germany’s second-biggest listed bank, was bumped out of the Dax to make way for Wirecard, which has also surpassed the market capitalisation of Deutsche Bank, Germany’s biggest lender.
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Wirecard, which is based in Aschheim east of Munich, authorises and processes payments for about 250,000 merchants, issues credit and prepaid cards and provides technology for contactless smartphone payments. Clients include German discounters Aldi and Lidl, as well as close to 100 airlines.
Barclays analyst Gerardus Vos calls it “a laser-focused company with a fantastic track record”.
In the first half of 2018, transaction volume grew 48.5 per cent to €56.2bn.
Yet its rise has been dogged by controversy. The company, which started in the late 1990s as a billing provider for online gambling and adult entertainment sites, has been the target of short sellers — who trade in stock that they believe will fall — several times.
It has faced short sellers’ accusations relating to money laundering. Its shares plunged by more than a fifth at one point in 2016, following publication of a highly critical report of its oversight and controls designed to prevent money laundering. The company vehemently denied the accusations, and neither criminal prosecutors nor financial watchdogs took action.
Investors have also raised questions about inconsistencies in its accounts as the company expanded by buying little-known businesses, while analysts have reported difficulties in finding evidence of businesses in Asia that would justify the large sums Wirecard spent there. “None of the various allegations made against Wirecard in the past was substantiated,” said Citi analyst Josh Levin. Mr Vos stressed that “based on the publicly available information, I have no reason to doubt Wirecard is a fit and proper company.”
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One area of concern for sceptics has been Wirecard’s global acquisition spree. Over the past decade, it has spent €1.3bn on more than 20 companies.
Its biggest deal was the €340m purchase of a group of Indian payments businesses in 2015. Yet a year before, the founders of those businesses had failed to raise funding in a process that would have valued the key asset at just €46m.
Mr Braun rejects the idea that the Indian acquisition was too costly, arguing that even lossmaking Indian payments providers are fetching valuations of around €1bn.
He also said the era of big, strategic dealmaking for Wirecard ended with the purchase of Citi’s North American prepaid card business in 2016. “We achieved our strategic goal of entering the US market,” adding that his focus is “now on organic growth”.
Still, some continue to struggle with the company’s financial reporting, which Citi’s Mr Levin criticises as “opaque”, due to a lack of granular information about individual business units. “It’s hard to understand what precisely the sources of Wirecard’s growth are,” he said.
Bob Liao, of Macquarie, is also baffled. He said: “I am not clear how they are growing so quickly — especially when the company is that big, and still growing at 25 per cent a year, obviously much faster than e-commerce sales. I’m not certain where they are getting the market share gains from.”
Wirecard rejects the criticism, calling its financial reports “one of the most detailed” in the payment industry.
The group’s sky-high valuation of more than 40 times next year’s expected earnings makes it vulnerable even to small disappointments. Even software group SAP, one of Germany’s highest valued corporates, trades at just half that.
Yet Mr Braun’s optimism is unchecked: “over the next decade, our organic growth will be significantly higher than . . . in the past 10 years,” he said, predicting higher operating profit margin as well.
He sees the rise of digital payments in shops as one of the main engines of growth, with smartphone payments crowding out cash and cards. “Over the next five to 10 years, the entire payment volume in physical retail will be re-distributed,” he said.
Mr Braun promises shareholders that revenue and earnings before interest, tax, amortisation and depreciation will double by 2020. Analysts on average expect the company to meet these targets. “Wirecard’s growth and profitability projections are realistic, given the sector’s high growth rates and a likely increase in Wirecard’s market share,” said Mr Levin.
One of the biggest beneficiaries of the rise in Wirecard’s share price has been Mr Braun: his 7 per cent stake is now worth around €1.6bn.
In December 2017, he pledged almost half of his stake as collateral for a loan from an undisclosed lender, which Mr Braun stresses was not Wirecard’s own bank.
Mr Braun would not comment on the size of the loan but stressed that he has only used part of it so far.
“The basic idea is that I don’t have to touch my Wirecard shares, which I see as the most interesting investment over the next 10 years, but still have the financial leeway to do other investments,” he said.
