PagSeguro Digital: Risk Reward Update

Research evidence excerpt

PagSeguro Digital: Risk Reward Update

UpdateM

RiskRisk RewardReward– PagSeguro- PagSeguroDigital (PAGS.N)Digital (PAGS.N)

Underweight on headwinds from market saturation, competition, and regulation

PRICE TARGET US$7.70 UNDERWEIGHT THESIS

Our valuation work is based on Discounted Free Cash Flow (free cash flow defined as EBIT We expect a continued slowdown in TPV

less cash taxes on EBIT, depreciation, capex, and changes in working capital) and Economic growth at PAGS, on the back of saturation in

Profit model. Our valuation work assumes a WACC of 14.8%. digital payments. PAGS's market share gains

should remain under pressure, because it

US$12.27 has a large share in MSMB and as saturation

Consensus Price Target Distribution US$7.70 US$14.09 leads to increased competition. We

MS PT anticipate competition will drive significant

Source: Refinitiv, Morgan Stanley Research Mean Morgan Stanley Estimates pricing pressure, particularly in pre-payment,

which drives 100% of PAGS's profits.

Regulatory risks to the availability

RISK REWARD CHART of parcelados could also pressure pre-

payment. We see diminishing operating

leverage due to rising sales & marketing

USD

US$17.00US$17.00(+73.82%)US$17.00(+73.82%)(+73.82%) expenses in a more competitive market. And,

we think, banking and credit are unlikely to

offset the decline in the payments business

16 given their relative small size.

12 Consensus Rating Distribution

US$9.78US$9.78US$9.78 46% Overweight

8 US$7.70US$7.70(-21.27%)US$7.70(-21.27%)(-21.27%) 46% Equal-weight

8% Underweight

MS Rating

Source: Refinitiv, Morgan Stanley Research

US$2.50US$2.50(-74.44%)US$2.50(-74.44%)(-74.44%)

MAY '25 NOV '25 MAY '26 MAY '27 Risk Reward Themes

Key: Historical Stock Performance Current Stock Price Price Target Contrarian: Negative