Company Overview: Laybuy Group Holdings Limited (ASX: LBY) is a provider of a payment platform to its customers. Commenced in the year 2017, the company has established itself as a leading BNPL provider in New Zealand, with a growing presence in Australia and the high growth UK market. The company has more than 8,000 Retails Merchants and over 733,000 Active Customers on its platform.

LBY Details

Robust Growth in Active Customers & Merchants Aid LBY: Laybuy Group Holdings Limited (ASX: LBY) is a fintech company that offers buy now pay later services. As on 16 April 2021, the market capitalisation of the company stood at ~$160.5 million. The company’s vision revolves around making life simpler for its consumers by assisting them better manage their budgets and dodge the cons of high-interest credit. The company’s main focus remains intact on ample UK market opportunities. The company has seen a significant presence in the UK. Annualised UK Gross Merchandise Value (GMV) stood at NZ$401 million in Q3FY21, depicting an increase of 624% year over year. The company targets large, powerful merchants to drive scale, network effects and brand recognition.

In 3QFY21, LBY’s total GMV came in at NZ$182 million, which skyrocketed 184% from the prior corresponding period. The company had witnessed robust growth in November 2020, owing to the numbers of consumers, who are using the company’s innovative payment platform. GMV increased a whopping 220% year-on-year to 30 November 2020 and came in at NZ$71 million. The momentum continued in the month of December 2020, with GMV skyrocketing 168% on pcp. This depicted the second-highest trading month across all geographic regions. Australia and New Zealand (ANZ) region saw an increase in the in-store contributions, aided by the launch of “Tap to Pay” in-store solutions. Active customers and Active merchants grew 117% and 64%, respectively, year over year in 3QFY21, depicting a continuous upward movement. Further, the company has also witnessed a rise of 439% in UK active customers and a 427% increase in UK active merchants, during the period.  We believe that the company remains on track to achieve its long-term goal of creating a global brand and strengthening its positioning as a leading Buy Now, Pay Later provider in the market. The company remains on track to build momentum in the UK region, with further large brands coming on board in FY21.

Top Brands Delivering on Growth Strategies (Source: Company Reports)

With its unique consumer offering, skilled technical team, experienced management executives and well laid-out growth strategy, the company seems well-placed for future growth opportunities. Looking at the past performance Annualised GMV, Active customers and Active merchants grew at a CAGR of 109.17%, 96.57% and 76.88%, respectively, over the period of 1HFY19-1HFY21, depicting a continuous upward movement.

Trend Showing GMV, Active Customers & Active Merchants (Source: Company Reports) 

The company remains on track to use its robust customer base and exclusive relationships to target small and medium enterprises via its partnership program in order to expand its retailer base and increase average commissions. The company’s growth strategy is focused on increasing its market share in already established geographies and rapidly growing in the United Kingdom and other international markets. Further, the company intends to leverage its strategic partnerships and opportunities for platform improvements. 

Key Metrics and Decent Liquidity Position: The company exited 1HFY21 with NZ$63.1 million of total assets. At the end of the period, cash balance amounted to NZ$31.8 million, driven by proceeds from the IPO. Proceeds from the IPO were used to pay down borrowings on the receivable’s facility with Kiwibank and fund UK loan book growth. Borrowings stood at ~NZ$0.1 million at the end of 1HFY21. Cash held by LBY at the end of 26 January 2021 came in at NZ$19.3 million, an increase of NZ$5.9 million from 31 December 2020. Net cash outflow from operating activities came in at NZ$27.4 million in 3QFY21, due to the robust growth in GMV in the third quarter. This, in turn, resulted in a rise in the loan receivable book at the end of 3QFY21, amounting to NZ$14 million.

In 1HFY21, the company had an asset to equity ratio of 1.26x as compared to the industry median of 1.61x. Debt to equity for the same time span stood at 0.01x, lower than the industry median of 0.34x. Notably, the company has secured a NZ$20 million debt facility with Kiwibank to fund its New Zealand and Australian operations and a ~NZ$151 million debt facility with Victory Park Capital (VPC) to fund the UK business. Considering the expanded debt facilities, the company remains on track with a significant GMV growth capacity.

Revenue and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Latest Business Update: The business continues to perform strongly with the addition of over 45,811 active customers and 640 active merchants in the month of January and February 2021. Annualised GMV for the month of January and February 2021 stood at NZ$630 million. Due to the increasing consumer demand for credit alternatives, the outlook for the BNPL industry remains positive. The company is currently focused on growing its presence in the United Kingdom and Australia while solidifying its position as a leading BNPL provider in New Zealand.

Key Update: On 16 April 2021, the company appointed two new management team roles to aid its significant growth objectives for its platform improvements. In doing so, the company appointed Paul Shingles as its Chief Operating Officer (COO).

Top 10 Shareholders: The top 10 shareholders together form around 64.57% of the total shareholdings while the top 4 constitutes the maximum holding. Styris (Craig John) holds the maximum interest in the company at 25.5%, followed by Rohloff (Robyn Anne) holding 14.78% of the shares, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Key Risks: On the flip side, rising variable costs and high fixed costs, owing to locally authorised lockdowns and changing consumer spending habits may weigh on the financial performance, going forward. Further, merchant default risk and merchant fraud risk remain a potential concern for BNPL companies. These companies are also a part of a highly regulated industry. While rules and regulations are necessary, they might have a denting effect on the company’s agility, innovativeness and ability to compete efficiently. The company operates in a highly competitive environment wherein new BNPL entrants, or existing competitors may deliver superior solutions and customer experience. Further, cyber-attacks also pose a threat to the company. The company’s business is heavily dependent on consumer spending and consumer preferences, which could get impacted by the outbreak of COVID-19. Also, stiff competition from peers and foreign currency fluctuation risks add to the woes.

Future Expectation: The company’s differentiated offering and growing brand awareness remain on track to deliver robust growth rates across all regions. It is focusing on improving operational efficiencies and merchant and consumer experience and is aiming increasing user engagement. The company remains confident of a strong FY21, owing to unveiling numerous key programs that include “Tap to Pay” partner programme. The company expects to deliver better-than-expected for revenue and net transaction margin by increasing investment in people, product, and partnerships to support growth prospects. For FY21, the company expects total revenues to be in the range of NZ$32-NZ$33 million, depicting an increase of 134-141% year over year. Net Transaction Margin (NTM) for FY21 is expected to be in the range of NZ$10.2-NZ$10.7 million.

Outlook (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

**1NZD =~0.93 AUD

Stock Recommendation: Over the last three months, the stock went down by ~20.8% but went up ~2.44% in the last one week. The stock made a 52-week low and high of A$0.85 and A$2.3, respectively. On the technical analysis front, the stock has a support level of ~$0.877 and a resistance level of ~$1.03. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer median, considering its rising variable costs and high fixed costs, lockdowns due to COVID-19 led outbreak, merchant fraud risk, foreign currency fluctuation and changes in consumer spending and consumer preferences. For the said purposes, we have considered Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P), Openpay Group Ltd (ASX: OPY), etc., as peers. Considering the current trading levels, strong liquidity position, higher GMV in 3QFY21, decent financial and operational highlights and an encouraging FY21 outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $0.94, up by 2.173% on 16 April 2021.

LBY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

 

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