Afterpay Touch Group Ltd

APT Details
 
Challenges lining up for FY 19: Afterpay Touch Group Ltd.’s (ASX: APT) stock tumbled 4.9% on August 30, 2018 continuing the 3.76% fall witnessed in last 5 trading days. Meanwhile, APT raised $117 million through an institutional placement, priced at $17.05 per share, which is a 2.5% discount to the 5 day VWAP to close of trade on 22 August 2018. This was still at the top end of the Placement price range. The company has planned to raise approximately $20 million through a Share Purchase Plan which will come after the Placement. The company is raising fund to use it for the company’s international expansion strategy to the UK market and enable further deployment of APT’s global. APT has already started trading in the U.S. in mid-May 2018, for whom the underlying sales (GMV) was approximately A$12m in June and A$20m in July (unaudited). Meanwhile, the UK acquisition will not materially contribute to revenue in the first half of FY19. The company has signed a Share Purchase Agreement with ThinkSmart Limited to acquire 90% of ClearPay Finance Limited, for 1m Afterpay shares. APT also can take an option to acquire the remaining shares (10%) held by ThinkSmart, exercisable any time after 5 years from completion, and this will be based on agreed valuation principles.
 
APT has now planned to launch its globally scalable system into the UK within the next 6 months and the company is immediately engaging relevant retailers that have a local UK presence. APT stock has risen 143.26% in three months as on August 29, 2018 as APT in FY 18 delivered robust rise of 390% in revenue to $142.3 million, 468% rise in underlying EBITDA to $33.8 million and reported loss to $9 million. This means the company is yet to come in to profit. Technically, APT stock on chart shows that the Relative Strength Indicator that gauges the momentum, has reached the oversold boundaries. Further, the company is not intending to launch in Britain for some months and this region will not be materially contributing to next FY at least for the first half, while investments are going up. This can be a set-back for the group while more regulations in terms of product platform with credit defaults pose additional challenges. The impact from receivable impairment methodology is also yet to be ascertained specifically. The investors can book their profits at this level. Based on the foregoing, we give a “Sell” recommendation on the stock at the current price of $ 18.02.


 
APT Daily Chart (Source: Thomson Reuters)
 

Metcash Limited

MTS Details

Statutory loss after tax of $149.5m in FY 18: Metcash Limited’s (ASX: MTS) stock has fallen 1.66% in three months as on August 29, 2018. The company for FY 18 had reported 10.7% rise in underlying profit after tax to $215.6m despite highly competitive and challenging conditions. After a year of strong performance in the Supermarkets, Convenience and Liquor businesses, MTS was disappointed to receive information from the Drakes Supermarkets Group that they would not continue a long-term supply agreement to have its South Australian stores supplied by the proposed new ‘best in class’ distribution centre in that state.  The current supply agreement with these Drakes stores runs until June 2019.  As a result, in the year-end accounts there was a $352.1m impairment charge to goodwill and other net assets in the Food pillar. The impairments were non-cash in nature and have no impact on the company’s debt facilities or compliance with banking covenants.  The impairment charge is shown as a significant item in the FY18 accounts, and is the main factor for the company reporting a statutory loss for the year of $149.5m. Moreover, MTS has signed a legally binding Heads of Agreement with Foodland Supermarket, which is the governing body for independent Foodland supermarket retailers in South Australia. This is for ten years. MTS now has the long term supply agreements in place, excluding the Drakes Supermarkets in South Australia, which will be supplied from a new DC that they plan to construct. Additionally, Jeff has become the new CEO of the company, who had succeeded Ian Morrice after the half year results last December.



FY 18 Financial Performance (Source: Company Reports)
 
The expectation of a flat result for FY19 is seen to be keeping the stock out of favor. Based on the foregoing, we give a “Sell” recommendation on the stock at the current price of $ 2.890.



 
MTS Daily Chart (Source: Thomson Reuters)