Afterpay Touch Group Limited

Healthy Contribution from Pay Now Aided APT’s Performance: Afterpay and Touchcorp joined hands in June 2017 and finally they were known as Afterpay Touch Group Limited (ASX: APT). The group primarily got a benefit as a result of this partnership. Its revenues and other income were $142.3 million in FY 2018 which reflected a whopping increase of 390% on the YoY basis. However, of the total group’s revenues, Afterpay accounts for 82%. The Afterpay’s underlying sales coupled with the stable merchant margin underpinned the YoY growth in the revenues and other income.

Revenue & EBTDA contribution (Source: Company Reports)

Afterpay’s underlying merchant sales amounted to $2.18 billion in FY 2018 which implies a rise of 289% on the year-over-year or YoY basis. This robust increase was well-supported by the crucial demand drivers like repeat customer activity, fresh customers and retailers as well as a higher share of checkout.

Breakdown of Pay Now Revenues:Pay Now generated total revenues of $25.6 million in FY 2018 implying a marginal rise from FY 2017. In the previous year, it was $25.4 million. This marginal rise in the YoY basis was witnessed mainly due to higher contribution from the health services.

Afterpay has conducted the review by alphabeta advisers and the results were also discussed by the company. As per the survey, circa 2.3 million are active customers. The majority of the customers (77%) have been utilizing the Afterpay as a means of the budgeting tool. The customers of Afterpay are shelling out lower fees than the users of the credit cards.


Active customer growth (Source: Company Reports)

Robust Opportunities in New Zealand and Australia: The management of Afterpay Technologies are of the view that substantial opportunities prevail in Australia and New Zealand. They are optimistic in the SMB space or Small and Medium Business. The company plans to bring 600-1000 SMBs per month on board. It could help the company in generating increased margins. In addition to this, the management also has favourable views for the verticals like health, beauty, entertainment as well as travel.

The management sees substantial growth opportunities in the UK (United Kingdom) region. As per them, the region serves as the third largest market in the world when it comes to e-commerce i.e. just behind the US and China. They believe that 87% of consumers are engaged in online shopping. The acquisition of Clearpay Finance Limited (90%) would also support its growth initiatives in the region. As a result of the acquisition, the entry of Afterpay would be eased in the UK region. It has plans to roll out a globally scalable system in the region in the time span of 6 months. In addition, the favourable market dynamics would lead to strong growth.

Stock Analysis: On the daily chart of Afterpay Touch Group, Relative Strength Index or RSI has been applied by using the default values. As per the observation, the 14-day RSI is near its oversold region. However, earlier the 14-day RSI has touched its oversold region and not so strong momentum was witnessed as a result of the rebound. Therefore, that can be termed as a whipsaw. Again, the 14-day RSI is about to touch the oversold region. Therefore, at the current market price of A$11.310, market players may avoid the stock.
 

EML Payments Limited

Organic Growth Supported EML’s FY 2018 Performance: EML Payments Limited (ASX: EML) ended FY 2018 by witnessing robust momentum in the total revenues thanks to the organic growth with respect to Australia region. On the YoY basis, total revenues amounted to $71 million reflecting 23% YoY growth. The FY 2018 results reflect the importance of the international presence as well. Of the total revenues, 75% was garnered from the offshore locations. The organic growth was helped by the robust momentum in the GDV or Gross Debit Volume which ended FY 2018 with $6.75 billion.

 
EML’s Gross Debit Volumes and Revenue Sources (Source: Company Reports)

The strong contribution from the Australian region reflects EML’s strategy to roll out reloadable programs with respect to the Salary Packaging industry. In addition, robust growth from the reloadable programs with respect to the online gaming space was also the contributor. The company’s revenue sources are establishment income, transaction fee revenue, interchange revenue, breakage as well as other sources. The concentration of interchange revenues in the total revenues rose from 17% in FY 2017 to 25% in FY 2018 thanks to the North American region because of the Non-Reloadable as well as B2B Virtual Payments. Moreover, because of the robust momentum in the reloadable programs a rise in the concentration of transaction fee revenues in the total revenues in FY 2018 on the YoY basis was also witnessed.

What Could Help EML Moving Forward: In FY 2019, the management of EML would be changing the names of the primary segments. Gift & Incentive (earlier known as Non-Reloadable), General Purpose Reloadable (Formerly Reloadable) as well as B2B Virtual Account Numbers (Formerly B2B Virtual Payments) would be the names of the segments. The company has entered into an agreement (5 years) with the ECE in order to facilitate the Non-Reloadable gift card program. This program would be provided to eighty-seven German shopping malls. The company anticipates that it would garner circa A$142 million with regards to the annualized GDV.

Moreover, in FY 2019, post-first-year integration costs, Perfectcard is anticipated to make a contribution in the group’s EBITDA in the range of A$400k-A$600k.

Stock Analysis: Moving Average Convergence Divergence or MACD has been applied on the daily chart of EML Payments Limited by using the default values. As per the observation, the MACD line has just crossed the signal line and is expected to move in the downward direction. However, the company is expected to benefit from the acquisitions moving forward. We maintain our “Speculative Buy” rating on the stock at the market price of A$1.505.
 

Zip Co Limited

Strong Performance Underpinned by crucial metrics: Zip Co Limited (ASX: Z1P) concluded FY 2018 on a stronger note as robust growth momentum was visible in the crucial metrics like retails partners, consumers as well as transaction volume. During the same period, the company managed to witness a rise in its Australian client-base thanks to the company’s retail network. The company plans to raise the engagement of the consumers’ as well as average spend per consumer.

Zip Company’s Credit Performance (Source: Company Presentation)

Zip Company ended FY 2018 with total income amounting to $40.4 million which reflects a substantial rise of 138% on the YoY basis. Of the total income, the substantial contribution was from the portfolio income which was $39.3 million in FY 2018. The company also witnessed robust credit performance in FY 2018. The recoveries with respect to the bad-debts helped in improving the bottom line numbers.

Strong Annual Transaction Volumes, Favourable Environment to Help Zip Company: Z1P plans to work towards achieving favourable momentum in the annual transaction volumes. The company anticipates annual transaction volumes of over $1 billion in FY 2019. While maintaining close watch on the cash flows, it expects to witness robust growth momentum.

However, moving forward, the company would be well-supported by the favourable operating environment. The company is expected to reap the benefits of the positive environment for the alternate payment providers as well as Fintechs. Additionally, it also plans to increase the consumers’ engagement.

Stock Analysis: Relative Strength Index or RSI has been applied on the daily chart of Zip Company Limited by using the default values. As per the observation, the 14-day RSI is near the oversold region and it is expected to reach the oversold region soon. After it reaches the oversold region, it is expected to witness a rebound. Thus, we maintain “Hold” rating on the stock at the present price of A$0.910 per share.
 

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