Company Overview: Openpay Group Ltd (ASX: OPY) is a global player in the ‘Buy Now Pay Later’ payment solutions market. It focuses on industries where it can make an impact, such as Automotive, Healthcare, Home Improvement, to name a few and targets manly finance-savvy customers. Its platform enables the company to provide flexible plans to its users with durations of 2-24 months and can value up to $20,000. OPY provides its services to customers and merchants in Australia, New Zealand, the UK.

OPY Details

Income Driven by Decent Rise in Total Transaction Value: Openpay Group Ltd (ASX: OPY) operates in the ‘Buy Now Pay Later’ payment solutions market. The market capitalisation of the company as on 13 April 2021, stood at ~$266.40 million. As per a recent update, the company has announced a ~$67.5 million of funding package in order to support its growth strategies. The funding comprises of a new $25 million corporate debt facility with an existing shareholder, receipt of binding commitments to raise ~$37.5 million through an institutional share placement, and $5 million through a non-underwritten share purchase plan to existing eligible shareholders. 

The company has commenced launch into the US market under the brand name Opy, with the product being tailored specifically for the US audience. After its success in the retail vertical in the UK, the company plans to move into Healthcare and Auto verticals where higher average transactions are witnessed.

The company delivered impressive financial results in H1FY21 with an increase of ~63% in total income to $13.4 million, when compared with the previous corresponding period. The revenue growth was aided by record growth in underlying TTV to over $165 million during the same period under consideration. Net receivables grew by ~54% to $61.1 million as of 31 December 2020. OPY ended the period with a cash position of $39.3 million.

H1FY21 Financial Performance (Source: Company Reports)

Strong Growth in Active Customers, Merchants and Plans: The company has witnessed a record ~213% rise in Active Plans to 1.4 million as of 31 December 2020. OPY’s plan mix continues to be skewed towards longer-term and higher-value plans, with three to five-month plans contributing 71% of TTV in H1FY21. The company registered ~123% increase in the number of Active Customers to 461,000 as of 31 December 2020, with strong traction witnessed in the Retail vertical. The number of active merchants also grew by ~46% to 2.8K as of 31 December 2020, driven by the successful launch of the company’s automated self-service program, which simplifies the process of onboarding of small and mid-sized merchants.

Increase in Active Plans (Source: Company Reports)

Payment Through Differentiated Approach: The company operates B2C Buy now, pay smarter openpay platform that enables it to deliver flexible plans to clients of length varying between 2 to 24 months, and payments up to $20,000. It also operates B2B OpyPro platform, which is directed from Enterprise Merchant to Business Customers. This offering allows companies to manage trade accounts end-to-end, including applications, credit checks, approvals and account management in one setup. The revenue is generated based on usage and scales with the scope of enterprise merchants’ operations.

Differentiated Platforms (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 65.55% of the total shareholding, while the top 4 constitute the maximum holdings. Meydan (Yaniv) and Chow Tai Fook Enterprises, Ltd. are holding a maximum stake in the company at 26.68% and 9.55%, respectively, as also highlighted in the chart below:

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

Key Metrics: The company delivered an increase in asset turnover ratio to 0.11x in H1FY21, compared to 0.09x in the prior period. The current ratio of the company stood at a comfortable 9.34x during the end of the first half of FY21. There was an uptick in the debt-to-equity ratio of the company to 0.99x in H1FY21, from a level of 0.55x in H2FY20. However, there was a significant improvement in the fixed asset turnover ratio of OPY to 3.09x, from 1.94x during the same period under consideration. The total debt of the company stood at $49.7 million as of 31 December 2020.

Growth and Turnover Profile (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

Key Risks:  The company operates in the BNPL space, which is subject to constant changes at varied points in time. This may give rise to new risks that might have an impact on the company’s operations. There is stiff competition in the sector, and there is a risk of other players delivering a superior solution and customer experience. To mitigate the risk, the company has to be vigilant and adept itself and look to innovate ahead of the curve. In this regard, OPY also has to invest in its technological capabilities in order to provide its clients and customers an enhanced payment experience. Any loss of personnel might pose a challenge for the company to maintain its profitability, along with loss of expertise and investment in employee training.

Outlook: The company has been able to witness positive results from its investment in core capabilities and seems to be well-positioned for the next phase of growth. Its automated merchant on-boarding process has led to a decent uptick in merchant acquisition in the AU market. It has also laid a robust foundation for growth in the UK, with roll-out in specialised verticals of Automotive and Healthcare sector. OPY continues to see decent growth across its verticals, with increased traction in Sports Memberships and Online Education. It has also continued with its robust growth in January 2021 with decent performance across all key performance indicators.

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.

Stock Recommendation: As per a recent update on 22 March 2021, the company has announced its entry into the US and UK veterinary markets in partnership with cloud-based Practice Management Software platform, exyVet. As per ASX, the stock of OPY is trading below its average 52-weeks’ levels of $0.600-$4.980. The stock of OPY gave a negative return of ~0.43% in the past three months and a negative return of ~13.25% in the past one month. On a technical analysis front, the stock of OPY has a support level of ~$2.155 and a resistance level of ~$2.828. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the decent top-line performance and growth in TTV. For the purpose, have taken peers such as Moneyme Limited (ASX: MME), Money3 Corp Limited (ASX: MNY), Humm Group Limited (ASX: HUM), to name a few. Considering the expected upside in valuation, current trading levels, impressive financial performance with decent growth in income, rise in Active Plans & Merchants, the announcement of funding package and optimistic long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $2.28, up by 6.046% as on April 13, 2021.

 

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

 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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