Stocks’ Details 

Sezzle Inc. 

Completion of Securities Purchase Plan: Sezzle Inc. (ASX: SZL) provides a technology-driven payment platform that facilitates payments between End-customers and retailers through its installment plans. As on 13 August 2020, the market capitalization of the company stood at ~$1.37 billion. The company has closed the Securities Purchase Plan and has received $78.21 million at an average application amount of ~$17,796.13. 

Sezzle Partners with Plaid: The company has partnered with Plaid, allowing its consumers to connect their financial account to Sezzle to pay using their bank account. This will lower its processing costs by facilitating consumer payments via the Automated Clearing House system. During the second quarter of 2020, the company reported decent performance with an increase of 57.5% in UMS. In the same time span, the company saw a growth in active customers to 325,990 and added 3,397 active merchants. At the end of quarter, the company had US$55.7 million of cash. The increase in cash balances was driven by positive operating cash flow and additional borrowings on the Company’s line of credit.

Quarterly Operational Performance (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks, including loss of key retail merchant client relationships, exposure to end customers bad debt, additional capital requirements, competitors and new market entrants, employee recruitment and retention, technological disruptions, reliance on third party data etc. 

Stock Recommendation: The company expects the annualized run rate for Underlying Merchant Sales to exceed US$1.0 billion per annum. The company will announce its results for the first half ended 30 June 2020 on 31 August 2020. As per ASX, the stock of SZL gave a return of 285.21% in the past six months but a negative return of 17.29% in the past one month. The stock of SZL is trading towards its 52-week high of $9.150. On a TTM basis, the stock of SZL is trading at an EV/Sales multiple of 13.1x, higher than the industry median (Industrials) of 1.5x and thus seems overvalued. Considering the current trading levels, volatility in returns, softer market conditions and key risks, we suggest investors to wait for a better entry level and give a watch stance on the stock at the current market price of $7.07, up by 0.569% on 13 August 2020.

flexigroup Limited 

flexigroup Exceeds 2.1 Million Customers: flexigroup Limited (ASX: FXL) is a diversified financial services group providing finance solutions to consumers and businesses. As on 8 August 2020, the market capitalization of the company stood at ~$487.07 million. During FY20, the company well progressed against its transformation strategy and demonstrated momentum by processing transaction volumes of $2.5 billion. The company has passed the milestone of two million interest free instalment customers using its payment solutions. The growth has been driven by the continued expansion of humm, along with the company’s strategic partnership with Mastercard. The transformation of the company’s digital offering has seen over 600,000 app downloads, increasing its brand presence to use one of its payment products.

Half Year Performance: During 1H20, the company reported 1.87 million customers and 69k retail partners. It also reported a transaction volume of $1.3 billion and cash NPAT of $34.5 million.

1H20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including credit risk, liquidity and market risk, operational and compliance risks etc. The company has also seen softness in discretionary consumer spending.

Valuation Methodology: Price/Cash Flow Multiple Based Relative Valuation (Illustrative)

Price/Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company expects to report cash NPAT for FY20 of $29 million. The company is likely to report its full year results on 26 August 2020. The company continues to support its customers and generate sustainable profits. The company has a wholesale funding facility headroom of $603 million and debt facilities of $145 million, representing net gearing of 29%. As per ASX, the stock of FXL gave a return of 17.06% in the past three months and is inclined towards its 52-weeks’ low level of $0.380. We have valued the stock using the Price to Cash Flow multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Credit Corp Group Ltd (ASX: CCP), Smartgroup Corporation Ltd (ASX: SIQ), Eclipx Group Ltd (ASX: ECX), etc., as peers. Considering the current trading levels, decent returns in the past three months, guidance for FY20 and growth opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.210, down by 2.024% on 13 August 2020.

Tyro Payments Limited 

Stable Balance Sheet: Tyro Payments Limited (ASX: TYR) is a provider of payments solutions, business loans and banking products to Australian businesses. As on 13 August 2020, the market capitalization of the company stood at ~$1.63 billion. During the period ended 31 July 2020, the company reported transaction value of ~$ $1.851 billion, reflecting an increase of 11% on the pcp. TYR remains in a decent financial position with no debt and cash balance of $154 million, up from $149 million as at 31 December 2019. The increase in cash over the period is a result of the relatively higher December trade receivables.

Half-Yearly Results: During 1H20, the company reported a 30% increase in transaction value to $11.1 billion and an increase of 23% in merchants to 32,450. In the same time span, revenue of the company went up by 28% to $117.3 million and gross profit increased by 21% to $50.3 million. 

1H20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including credit risk, market risks, liquidity risks and risks from the general and economic conditions. The company has also seen softness in discretionary consumer spending which may impact its revenues. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is witnessing continued growth in merchant base and reported stable margins. It is targeting larger merchants and is aiming further growth in existing verticals in Australia. TYR is also targeting expansion into e-commerce and other payment types. The company will announce its results for FY20 on 18 August 2020. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of middle single-digit (in percentage terms). For the said purposes, we have considered EML Payments Ltd (ASX: EML), Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) as peers. Considering the decent returns in the past three months, improvement in operational and financial metrics and growth opportunities, we recommend a ‘Hold’ rating at a current market price of $3.290, up by 0.612% on 13 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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