Stocks’ Details

Zip Co Limited

Well-Positioned for Growth: Zip Co Limited (ASX: Z1P) offers point-of-sale credit and payment solutions to customers and provides a variety of integrated Retail Finance solutions to merchants across numerous industries, both online and in-store. As on 14 July 2020, the market capitalization of the company stood at ~$2.98 billion. During May 2020, the company reported monthly revenue of $15.6 million, up by 78% on the YoY basis and an increase of 63% in transaction volume of $189.3 million. In the same time span, the company added 65k users in one month and merchant numbers increased to 23.6k.

Key Operating Metrics (Source: Company Reports)

Acquisition of QuadPay: The company has accelerated its global expansion strategy and has announced the acquisition of US BNPL player QuadPay. With the acquisition, the company has cemented its position as a global BNPL leader across 5 markets including AU, NZ, US, UK, and SA. The acquisition is likely to add to the company’s growth with a pro-forma volume of over 40% and a growing customer base of more than 3.5 million global shoppers.

Key Risks: The company is exposed to a variety of risks including the acquisition and retention of customers, commercialization, technology, third party service provider reliance, competition and development timeframes and product distribution.

Stock Recommendation: With the outbreak of the COVOD-19 crisis, the consumers have shifted its space from cash to digital, contactless payments and e-commerce, resulting in an increased market for the company. As per ASX, the stock of Z1P gave a return of 109.62% in the past six months and a return of 32.24% in the last one month. The stock is also trading close to its 52-week high of $7.880. Considering the current trading levels, decent returns in the past six months, expected synergies from the acquisition of QuadPay and improving financial performance amidst the global pandemic, we recommend a ‘Hold’ rating on the stock at the current market price of $7.040, down by 7.733% on 14 July 2020.

flexigroup Limited

flexigroup Exceeds 2.1 Million Customers: flexigroup Limited (ASX: FXL) offers financial solutions across a broad range of industries including consumer revolving finance and cards, lease and rental financing services and no interest ever payment products. As on 14 July 2020, the market capitalization of the company stood at ~$487.07 million. The company has recently announced that it has passed the milestone of two million interest-free instalment customers using its payment solutions and has added over 380,000 new customers added in the last 11 months. The growth has been driven by the continued expansion of humm, along with its strategic partnership with Mastercard.

Trading Update: During the third quarter ended 31 March 2020, the company reported an increase of 18% in transaction volumes on continuing products and growth of 5% in receivables to $2.77 billion. In the same time span, it reported a growth of 12% in merchant partners. During 1H20, FXL reported an increase of 50 bps in ROE to 11% and a growth of 8% in NPAT to $34.5 million.

1H20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to various risks including credit risk, market risk and liquidity risk. It may also be impacted by the adverse changes to contractual debt facilities when they mature.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings 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 payment services of the company are growing and is well enriched with its customers. The company has increased its brand presence and seen over 600,000 app downloads. As per ASX, the stock of FXL gave a return of 31.38% in the past three months and currently, it is trading below the average of its 52-week trading range. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months and increasing customers, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.20, down by 2.834% on 14 July 2020.

Openpay Group Ltd

Institutional Placement to further Accelerate Openpay’s Growth: Openpay Group Ltd (ASX: OPY) is a provider of payments technology that offers a Buy Now, Pay Later product. As on 14 July 2020, the market capitalization of the company stood at ~$434.71 million. The company recently raised $33.77 million at $2.40 per share in an oversubscribed placement. These proceeds will be used to support growth strategies, including further investment in presence in core markets of Australia and the United Kingdom, strategic growth partnerships and alliances, etc.

Quarterly Update: During the third quarter ended 31 March 2020, the company continued to report growth across all leading indicators. It made a new record with an increase of 203% in active plans and growth of 113% in active customers. In the same time span, active Merchants grew 63% and TTV grew to $45.8 million.

Quarterly Operating Highlights (Source: Company Reports)

Key Risks: The business model of the company revolves around technology and any disruption in the technological operation may hamper business performance. Further, the company is also exposed to liquidity and funding risk.

Stock Recommendation: The company is likely to release its results for the quarter ended 30 June 2020 on 15 July 2020. As per ASX, the stock of OPY gave a return of 210% in the past six months and a return of 88.32% in the last one month. The stock is trading close to its 52-week high of $4.80. On a Trailing Twelve Months basis, the stock of OPY is trading at an EV/Sales multiple of 15.6x, higher than the industry median (Professional & Commercial Services) of 2.1x, and thus seems overvalued. Considering the current trading levels, returns in the past six months and softer market conditions due to the COVID-19 crisis, we suggest investors to wait for the better entry level and hence, have a watch stance on the stock at the current market price of $4.40, up by 9.181% on 14 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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