Short seller doubles down on Nuvei with second critical report

U.S.-based short seller Spruce Point Capital is doubling down on its criticism of Canadian payments company Nuvei Corp. (NVEI.TO) (NVEI), one day after movie star Ryan Reynolds revealed he's an investor in the company.

Spruce Point's 84-page report lays out a new slate of concerns, including Nuvei's true exposure to crypto, its ties to now-bankrupt crypto exchange FTX and its acquisition of payments company Paya Holdings.

Spruce Point says Nuvei's shares could fall between 35 per cent and 50 per cent.

Nuvei's TSX-listed shares dropped roughly six per cent after the report was released but had largely rebounded by late morning. Since the beginning of this year, its stock price has surged 60 per cent.

"Short reports have become increasingly commonplace in the public equity markets. We will not comment or respond further to any point of view issued by the authors of the report. We’re staying focused on execution and on continuing to deliver strong performance for customers, partners and shareholders," Alex Hammond, Nuvei's head of communications, said in an emailed statement to Yahoo Finance Canada.

"According to FTX bankruptcy filings, Nuvei is listed as a creditor with three entries, which is further evidence that a financial relationship existed between the two companies. Based on our research, we heard that Nuvei actually was an initial investor in FTX," Spruce Point's report said on Tuesday.

The hedge fund also questioned the overall health of Paya Holdings, claiming the company has been experiencing growth challenges and fiddling with its disclosure of its customer base.

Nuvei acquired Paya for $1.3 billion in a leveraged deal earlier this year.

The critical report comes on the heels of a Monday announcement that Canadian actor Ryan Reynolds has invested in the company, though the size or scope of the investment wasn't disclosed.

Spruce Point wondered whether there was a link between Reynolds and a $25 million stock grant Nuvei issued that was backdated to March 2022.

"On record, [Reynolds] said the investment was "2 years or so in the making". Nuvei first disclosed a large Restricted Stock Unit grant to an unnamed "third-party consultant" for unspecified services in March 2022. We find that Nuvei recently backdated the accounting recognition from May 9, 2022 to March 2022," the report said.

It's the second time the short seller has targeted Nuvei, the first being in late December 2021, when it criticized management and its financial performance, among other issues.

Report 'doesn't pack as big of a punch'

At least one analyst is dismissing many of Spruce Point's claims.

"Like its last report, we believe the short seller is grasping for irregularities without citing material and provable issues at NVEI. While we respect the investor's investigative approach, it's hard for us to connect all the dots and get on board that anything is actually wrong with the company," Sanjay Sakhrani, a managing director at KBW, said in a note to clients on Tuesday.

He's maintaining his "outperform" rating on the stock with a 12-month price target of $50.00.

According to Sakhrani, the hedge fund's concerns about Nuvei's exposure to crypto and FTX are overblown and on Paya, he says "much of the report alludes to data points that are hard for us to conclusively ascertain, but nothing seems out of line with our understanding of PAYA's business and the associated trends before its acquisition by NVEI."

Overall, despite this being the fund's second attack on Nuvei, the analyst says it "doesn't pack as big of a punch."

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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