Sezzle Inc.

SZL Details

Significant Improvement in Operational Performance: Sezzle Inc. (ASX: SZL) is engaged in Buy Now Pay Later (BNPL) segment. The company utilises technology for its payment platform that facilitates payments between consumers and retailers. SZL's offers its consumers to pay in short-term or interest-free instalment plan. The company has registered a significant improvement in its operational performance. The company has registered an increase of +251% YoY in Underlying Merchant Sales (UMS) to US$856.4mn in FY20 as compared with US$244.1mn in FY19. The company has registered an increase of 144% YoY in active consumers to ~2.23mn in FY20. Similarly, active merchants increased by 167% YoY to 26,690. The company has seen an increase in repeat usage by 6.1 percentage points in FY20.

FY20 Financial Highlights: The company has registered an increase in its total income to US$58.78mn in FY20 as compared with US$15.80mn in FY19 on the back of higher active consumers and merchants. The company has registered a loss in FY20 to US$31.89mn. The company has posted a healthy balance sheet by registering an increase in cash and cash equivalents to US$84.28mn as on 31 December 2020 as compared with US$34.96mn as on 31 December 2020.

Total Income Growth (Source: Company Reports)

Key Risks: The company is present in BNPL segment which requires technology for its business operations. The company’s business may get impacted due to failure of upgrading its technology for its services and may face financial losses. The company operates under a highly regulated environment and requires regulatory approvals to carry out its business, any delay in regulatory approvals may lead to financial losses for the company. 

Outlook: As per the company reports, the company is expecting Underlying Merchant Sales (UMS) annualised run-rate of US$2.5bn at the end of FY2021. The company is testing market developments in India and Europe to explore growth opportunities and offer its services in the global markets. The company is strengthening its balance sheet via raising funds from equity capital.

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: In the last one month, SZL has increased by ~19.64% and by ~22.89% in the last three months. The current market capitalisation of SZL stands at ~$1.86bn as of 16 April 2021. The stock is currently trading above the average 52-week price level range of ~$1.280-~$11.990. On the technical analysis front, the stock has a support level of ~$8.842 and a resistance of ~$10.28. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a high single-digit upside (in % terms). We believe that the company can trade at slight premium as compared to its peer median, considering the company has registered a growth in UMS and strengthened its balance sheet with higher cash position, providing growth opportunities in the future. For the purpose we have taken peers Tyro Payments Ltd (ASX: TYR), Afterpay Ltd (ASX: APT), WiseTech Global Ltd (ASX: WTC). Considering the company has posted an increase in its revenues (YoY), increase in number of active consumers and active merchants, associated risks with the company, and valuation, we recommend a “Hold” rating on the stock at the current market price of $9.50, up by 0.316% as on 16 April 2021.

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

EML Payments Limited 

EML Details

Increase in General Purpose Reloadable (GPR): EML Payments Limited (ASX: EML) is engaged in payment solutions in Australia. The company primarily operates in three segments: Gift & Incentive (G&I), General Purpose Reloadable (GPR) and Virtual Account Numbers (VANS). The company is present in multiple countries such as Australia, North America, United Kingdom and Europe. The company has seen a robust growth in GPR leading to higher Gross Debit Volume (GDV). The company has seen a growth of 233% in GDV to $4.87bn in 1HFY21 as compared with $1.466bn in 1HFY20, leading to a growth of 314% in revenue to $54.4mn from this segment. The company continues to grow globally through its GPR programs and represents 57% of group revenue in 1HFY21.    

1HFY21 Financial Highlights: The company has registered an increase in its revenue and other income to $94.29mn in 1HFY21 as compared with $59.15mn in 1HFY20 on the back of increase of 54% YoY in Gross Debit Volume (GDV). The company has registered a loss of $25.73mn in 1HFY21 and registered an increase in its cash and cash equivalents position to $136.53mn as on 31 December 2020 as compared with $118.38mn as on 30 June 2020.

Revenue Growth (Source: Company Reports)

Key Risks: The company operates in multiple countries which expose them towards foreign exchange risks. The company relies on its key personnel to carry out its business efficiently, losing any such key personnel may lead to business loss. 

Outlook: As per the company reports, the company has provided financial guidance for FY21. It expects EBITDA to be in a range of $50.0mn-$54.0mn, revenues in a range of $180.0mn-$190mn, NPATA in a range of $30.0mn-$33.5mn for FY21.

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: In the last one month, EML has increased by ~6.79% and by ~54.64% in the last three months. The current market capitalisation of EML stands at ~$2.0bn as of 16 April 2021. The stock is currently trading above the average 52-week price level range of ~$2.150-~$5.890. On the technical analysis front, the stock has a support level of ~$5.528 and a resistance of ~$5.708. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). We believe that the company can trade at slight discount as compared to its peer average, considering the company has registered losses and witness decline in revenues from Gift & Incentive (G&I) segment. or the purpose we have taken peers Sezzel Inc. (ASX: SZL), Bravura Solutions Ltd (ASX: BVS), Tyro Payments Ltd (ASX: TYR). Considering, the company has posted an increase in its revenues, reported growth in GPR segment, and valuation, we recommend a “Hold” rating on the stock at the current market price of $5.660, up by 1.981% as on 16 April 2021.

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

References 

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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