ZIP Co Limited 

Z1P Details

Acquisitions for Further Expansions: ZIP Co Limited (ASX: Z1P) is a payments provider and credit card disruptor in Australia. The company's segments include ZIP AU, Zip Global, and Spotcap. Z1P has announced on 24 May 2021 regarding acquiring the remaining shares of European Buy Now Pay Later (BNPL) provider Twisto Payments (Twisto). At the same time, the company has entered into an agreement to acquire the remaining shares of Spotii Holdings Ltd (Spotii), BNPL company in UAE. These acquisitions enable the company to expand its presence in UAE and European regions. Z1P is expecting to complete the Spotii acquisition by Q3CY2021 and Twisto acquisition by Q4CY2021.

3QFY21 Financial Highlights: The company has registered an increase of 83% YoY in its revenues to $112.3mn in 3QFY21. Z1P has registered an increase of 114% YoY in its transaction volume to $1,599.3mn in 3QFY21. The company has posted an increase of 88% YoY in the number of customers to 6.4mn in 3QFY21. Similarly, the company has registered an increase of 81% YoY in its merchants to 45.3k.

Financial Performance During 3QFY21 (Source: Company Reports)

Key Risks: The company requires to keep its technology updated to carry out its business efficiently. Any obsolete or failure of technology may impact the business of the company. The company may see an impact on its profit margins with a severe movement in Interest rates.

Outlook: Z1P is acquiring companies across different regions to expand its presence by increasing the number of merchants and consumers. The company is expecting to complete the Spotii acquisition by Q3CY2021 and Twisto acquisition by Q4CY2021 in UAE and European region, respectively. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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: The stock of Z1P gave a return of ~-20.22% in the last one month and a return of ~-42.64% in the last three months. The current market capitalisation of Z1P stands at ~$3.90bn as of 24 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$3.43-~$14.53. On the technical analysis front, the stock has a support level of ~$5.84 and a resistance of ~$9.11. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in transaction volumes in 3QFY21 and an increase in merchants in 3QFY21. For this purpose, we have taken peers Afterpay Ltd (ASX: APT), Humm Group Ltd (ASX: HUM), WISR Ltd (ASX: WZR). Considering acquiring companies for global expansion, robust 3QFY21, associated business risks, current trading levels and valuation, we recommend a “Hold” rating on the stock at the current market price of $7.1, up by ~0.852% as on 24 May 2021.

Z1P Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Openpay Group Ltd 

OPY Details

Update on Share Purchase Plan: Openpay Group Ltd (ASX: OPY) provides payments platform for merchants and consumers. The company’s software and technology platform enable customers to select from a range of no interest payment plans when purchasing goods or services. OPY has successfully raised $8.7mn through a share purchase plan (SPP). The company has initially come up with a subscription of $5mn through SPP but agreed to accept oversubscriptions from the investors looking to increase their stake in the company. The proceeds are expected to be utilised for business development in the UK and the US. Moreover, the company is likely to utlise the funds for launching new products in Australia and to meet working capital requirements.

1HFY21 Financial Highlights: The company has registered an increase in total income to $13.62mn in 1HFY21 against $8.27mn in 1HFY20. The company has reported a loss to $25.48mn in 1HFY21. OPY has seen a decline in its cash position to $39.28mn as on 31 December 2020 against $70.05mn as on 30 June 2020.

Income Growth (Source: Company Reports)

Key Risks: The company operates in multiple currencies, and any adverse movement in foreign exchange prices may impact the financials of the company. The company may see an impact on its profit margins with a severe movement in Interest rates.

Outlook: OPY has signed an agreement with Ford Motor Company. The partnership is likely to enable OPY to get access to dealership network of Ford Motor. Moreover, OPY secured a strategic revenue share agreement with digital health group, that enables OPY to diversify to healthcare segment. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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: The stock of OPY gave a return of ~-17.22% in the last one month and a return of ~-46.10% in the last three months. The current market capitalisation of OPY stands at ~$226.23mn as of 24 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.13-~$4.980. On the technical analysis front, the stock has a support level of ~$1.395 and a resistance of ~$2.435. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering a decline in cash and incurring a loss. For this purpose, we have taken peers Moneyme Ltd (ASX: MME), Humm Group Ltd (ASX: HUM), Money3 Corp Ltd (ASX: MNY), etc. Considering the agreement with Ford Motor, associated business risks, current trading levels and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.73 as on 24 May 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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