New Street: STNE US (Neutral, TP: $82, +19%) StoneCo Initiation - Neutral: New Services Supportive, Core concerns

We are initiating on StoneCo, adding to our list of Fintech/ Payment coverage in the LatAm region. We run through various sources of new revenue which the market is focused on, including, 1/ Software (the “Square” model), 2/ E-Commerce (the “Shopify” model), 3/ Credit – as we’re seeing more widely across Brazil – as well as initial efforts on, 4/ M-wallets (the anticipated Inter follow-on). We’re enthused about much of this, although in not all cases is this super material (more defensive). Meanwhile, the SME Acquirer business is still key (85% of pf revenue) and we see Prepayment risks (35% of revenue) with the recently launched Registry of Receivables and ongoing competition in the SME space. StoneCo’s share price looks to pretty fairly reflect the balance of these issues, and our preference in the Fintech space lies with PagSeguro (Buy) which trades on a ~30% discount to StoneCo on EV/revenue despite similar growth and profitability outlook.

Reflecting the recent ~10% strengthening in the BRL/USD, we move our target on PagSeguro (Buy) up to USD77 (USD70) - giving over 40% upside - and our target on MercadoLibre (Buy) to USD1,950 (USD1,900) – 30% upside.