Zip Co Limited

A Look at Q4FY19 Results: Zip Co Limited (ASX: Z1P) provides point-of-sale credit and digital payment services. The market capitalisation of the company stood at ~A$1.12 Bn as on 24^th July 2019. Recently, the company via a release announced its performance for Q4 FY19. In financial year 2019, Zip significantly increases its number of merchants on payments platform. As a result, it finished the year with more than 36,000 points of presence where customers could check out with Zip at more than 16,200 merchants.In the same time period, it introduced personalised promotions to its customers with new features like search for local dentists, simplified repayments, etc., along with several engagement initiatives which aimed at delivering increased customer usage.

The company reported revenue of $27.0 Mn in Q4 FY19, reflecting a rise of 105% in comparison to Q4 FY18. The company obtained the top 10 ranking throughout Apple and Google stores.Post capital raising of approximately $57 million in Q3 FY19, the company has progressed its plans to accelerate numerous growth initiatives and future partnerships as well as strengthen the Company’s balance sheet.


Key Operational Metrics (Source: Company Reports)

What to Expect: Zip Co Limited is well-positioned to continue its rapid growth. The company continued growth throughout all key operating metrics, transactions, customers, and merchants. The company stated that more than $1.1 billion in transaction volume has been processed on platform in financial year which might attract the attention of the market players moving forward.

Stock Recommendation: The company’s gross margin stood at 37.1% in 1H FY19, reflecting YoY growth of 29.2%. Its asset to equity ratio stood at 20.20x in 1H FY19 as compared to 6.54x in 1H FY18. Also, the company’s debt to equity ratio stood at 18.85x in 1H FY19 against 5.36x in 1H FY18.

Coming to the stock’s past performance, it produced returns of 5.65% and 38.86% in the time span of one month and three months, respectively. As per ASX, the stock of Zip Co Limited is trading closer towards 52-week higher levels. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$3.470 per share (up 9.119% on 24^th July 2019, owing to the release of quarterly update for the period ending 30 June 2019).
 

AUB Group Limited

End of Joint Venture Agreement: AUB Group Limited (ASX: AUB) is primarily focused on insurance broking, underwriting agency and risk management business. The market capitalisation of the company stood at A$816.62 Mn on 24^th July 2019. Recently, the company, via a release dated 5^th July 2019 stated that Challenger Limited and its entities have changed interest in the company with the voting power of 10.83% in comparison to the previous voting power of 7.60%. In another update, AUB Group and IBNA have made an announcement to end the AIMS JV agreement. The decision of ending AIMS joint venture relationship was because of diverging requirements throughout the 2 member groups on the future direction of the partnership. The company added that the outcome of the decision will have a neutral impact on the results of FY20. The following picture is important for market players:

 
Merger and Acquisition Overview (Source: Company Reports)

What to Expect:For FY20, the company is planning to deliver on upgraded growth ambitions via its market-leading partner propositions. It is focused on enhancing partner proposition with improved product and capacity offerings and to consolidate sector specialisations to build scale and market leadership. Adding to that, it is planning to implement best-in-house technology features throughout the group.

Stock Recommendation:The company reported a gross margin of 94.6% in 1H FY19, reflecting the growth of 0.2% on YoY basis. It posted a net margin of 18.2% in 1H FY19 against the industry median of 3.0%. This implies that the company is effectively converting its top line into the bottom line in comparison to the broader industry. The company reported return on equity of 5.7% against the industry median of 2.4%. This indicates that the company is providing better returns to the shareholders in comparison to the peer group. The current ratio of the company stood at 1.28x in 1H FY19, reflecting YoY growth of 2.2%, which represents that the company is improving its position to address its short-term obligations. Also, respectable liquidity levels might help the company in making deployments towards strategic business objectives.

With respect to the stock’s past performance, it generated returns of -0.63% and -12.24% in the time span of one month and three months, respectively. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$11.140 per share (up 0.27% on 24^th July 2019).  

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