Afterpay Touch Group Limited

Robust Increase in Underlying Sales: Afterpay Touch Group Limited (ASX: APT) had stated that the underlying sales amounted to more than $2.2 billion in 1H FY2019 which implies the substantial rise of 140% on the YoY basis. In the time span of previous twelve months, the company also stated that more than 23,000 merchants did transactions with it on a global basis. The company had also stated that on the back of scale benefits as well as investment towards the risk management capabilities and processes, the company witnessed gross losses’ reduction, and these have also aided APT in the reduction of late fees.

With respect to the company’s Australia and New Zealand trading, the company stated that around A$2.0 billion with respect to total underlying sales were witnessed by the platform of the company in 1H FY2019 which happens to be doublethe value as compared to the same period of the previous year. The company stated that the underlying sales performance with regards to the holiday season was robust and the company also witnessed contribution from its larger/enterprise merchant partners. However, in FY 2018, the company encountered robust momentum in the financial performance thanks to the significant momentum in Afterpay as well as Pay Now contribution (full-year). In FY 2018, the company posted revenues and other income of A$142.3 million implying the rise of 390% YoY.


FY 2018 Group Financial Snapshot (Source: Company Reports)

Targeting New Market Might Support APT Moving Forward: Afterpay Group Limited had earlier provided information on the UK market. The company stated that dynamics in the UK market might support the company moving forward. The robust debit card transaction preference as well as lesser inclination towards the traditional credit options with regards to the online purchasing are some the market dynamics.

Moreover, the company had stated that it would be working towards tapping the new markets and would build base. This could also act as a catalyst for the company’s long-term growth.

On the other hand, the broader sector’s performance was somehow stable on 21 January 2019 while negative momentum was encountered in the information technology sector. This sector closed the session by falling 0.7% largely because of Senate hearing which will be held on tomorrow (i.e., 22 January 2019). With this, Afterpay Touch Group witnessed a fall of 5.28% on the day’s trade. The Economics Committee would be conducting the public enquiry over the “Credit and financial services targeted at the Australians at risk of financial hardship.”
 
Stock Recommendation: On the daily chart of Afterpay Touch Group, Moving Average Convergence Divergence has been applied and default values were used for the purposes. As per the observation, the MACD line has crossed the signal line and is being trending in the upward direction. On the other hand, the favourable market dynamics related to the UK market as well as the focus towards increasing the base might support the company moving forward. However, we presume that the primary growth factors of the company have been discounted in the present market price of the stock. Hence, we advise to investors that they need to watch the stock at the current price of $15.25 and wait for further growth catalysts in the upcoming period.
 

Zip Co Limited

Company targets to increase transaction volume in FY19: ZIP Co Limited (ASX: Z1P) is a payment solution provider. The company offers point-of-sale and digital payment services to merchants and consumers across health, retail, education and travel industries. It offers a range of Retail Finance solutions to businesses, both online and in-store. ZipPay and zipMoney are the two main products of the company.

The company has recently announced an update on the performance it has achieved on the acquisition of zipMoney Holdings Pty Limited in the month of September 2015. The targets of the company include achieving $10 million in aggregate transaction volume within twelve months of re-listing, 20 million of aggregate transaction volume within twenty-four months of re-listing and achieving a pre-tax break-even over three consecutive months within thirty-six months of relisting.
 

Key Financial Metrics (Source: Company Reports)

The revenue increased significantly and stood at AUD39.53 million as compared to AUD16.58 million in FY17, primarily on the back of portfolio income.The net loss increased to stand at AUD22.55 million in FY18 as compared to AUD20.19 million in FY17, primarily driven by increase in operating expenses.The current ratio stood at 33.19x in FY18.

What Might Support Z1P Moving Forward: Going forward, in FY19, the company has an outlook to increase the transaction volume and customer growth targets and expand its Zip network. In addition, it would also work towards an increase in the customer engagement, capitalize on the favourable operating environment and funding diversification.

The stock last traded at $1.170 per share with an increase of 2.632% during the day’s trade. It has a market capitalization of ~$359.14 million. The stock posted YTD return of 3.64% and produced a return of 9.09% over the last six months.
Largely on the back of strong outlook and decent stock’s returns over the past few months, we maintain our “Hold” recommendation on the stock at current price of $1.170.  
 

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