Stocks’ Details

Zip Co Limited

October FY21 YTD Trading Update: Zip Co Limited (ASX: Z1P) offers point-of-sale credit and payments to customers and provides integrated retail finance solutions to merchants in the retail, education, health and travel industries, both online and in-store. As on 27 November 2020, the market capitalisation of the company stood at ~$3.14 billion. During the four months ended 31 October 2020, the company continued to deliver record results across Australia, New Zealand, and the United States. In October 2020, the company reported a record transaction volume of $401.1 million. The company finished the quarter with an increase in monthly revenue to $27.6 million and reported a YoY rise of 109% in customers to 4.8 million. During the quarter, the company also completed the acquisition of QuadPay, providing immediate access to the $5t US retail market.

Financial and Operational Performance (Source: Company Reports)

Acquisition of The Urge and other Share Issuances: The company has recently acquired Urge Holdings Pty Ltd for an upfront consideration of $3 million. The consideration is to be settled through the issue of 432,516 fully paid ordinary shares in Zip to the shareholders of Urge.

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

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

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: In the recently released ASIC’s report on the BNPL sector, the top management stated that the BNPL sector showed the continued growth and popularity in Australia and Zip has invested in market-leading proprietary credit decision capability, which is delivering better outcomes relative to its peers. As per ASX, the stock of Z1P is trading slightly above the 52-weeks’ average levels but retains decent potential for further growth. The stock of Z1P gave a negative return of 31.64% in the past three months but a positive return of 1.33% in the last one month. On a technical front, the stock of Z1P has a support level of ~$4.12 and a resistance level of ~$8.34. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Afterpay Ltd (ASX: APT), Tyro Payments Ltd (ASX: TYR) and Pushpay Holdings Ltd (ASX: PPH) as peers. Considering the current trading levels, decent returns in the past three months, record quarterly performance and the acquisition of the Urge, we recommend a ‘Hold’ rating on the stock at the current market price of $6.060, down by 0.165% on 27 November 2020. 

Sezzle Inc.

Record Quarterly Results: Sezzle Inc. (ASX: SZL) is engaged in the operation of a payment platform. As on 27 November 2020, the market capitalisation of the company stood at ~$1.20 billion. During the quarter ended 30 September 2020, the company reported YoY growth of 231.5% in underlying merchant sales to US$228 million and saw a slight improvement in merchant fees to 5.8% compared to 5.6% in 2Q20. In the same time span, active consumers rose by 178.1% to 1.79 million and active merchants went up by 178.3% to 20,890.

Average Monthly UMS (Source: Company Reports)

Outlook: The company has reiterated its guidance and expects an annualized run rate of more than US$1.0 billion in UMS in 2020. The company seems well-positioned for the ongoing move to online, as nearly 100% of Sezzle’s transactions are via eCommerce.

Stock Recommendation: The company will pursue its growth strategies and seems well-positioned weather the effects of COVID-19. The stock of SZL gave a negative return of -46.47% in the past three months and a negative return of 13.03% in the last one month. On a technical front, the stock of SZL has a support level of $5.34 and a resistance level of ~$8.76. Considering the current trading levels, record quarterly results, and modest long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $6.060, down by 1.142% on 27 November 2020.

Openpay Group Limited

Record Growth Trajectory: Openpay Group Limited (ASX: OPY) is a provider of payments technology that offers a Buy Now, Pay Later product. As on 27 November 2020, the market capitalization of the company stood at ~$287.30 million. During the first quarter of FY21, the company reported record growth across leading indicators including a significant increase of 235% in active plans to 1,060k and a rise of 145% in active customers to 372k. At the end of the same period, the company reported revenue of $6.2 million and maintained strong gross revenue yields and net transaction margins.

Quarterly Operational Highlights (Source: Company Reports)

Growth Opportunities: The company has made decent progress in its technical platform and products. The upgrade of its eCommerce customer journey is likely to have a positive impact on customer experience. OPY is planning to launch strategies for its verticals in the UK and seems well-placed to capitalize on a strong position in existing verticals.

Valuation Methodology: Price to Sales Based Market Multiple Valuation (Illustrative)

Price to Sales Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: The UK business of the company has accelerated its momentum and continued to demonstrate growth in Australia. The BNPL sector has proven to be an attractive industry, with adoption in most retail and consumer markets. As per ASX, the stock of OPY is trading on average 52-weeks’ levels but retains potential for further growth. The stock of OPY gave a negative return of 44.25% in the past three months and a negative return of 4.02% in the last one month. On a technical front, the stock of OPY has a support level of ~$1.76 and a resistance level of ~$3.73. We have valued the stock using the P/Sales based market multiple valuation and have arrived at a target upside of lower double-digit (in % terms). For the said purposes, we have considered Zip Co Ltd (ASX: Z1P), Afterpay Ltd (ASX: APT), and Sezzle Inc (ASX: SZL) as peers. Considering the current trading levels, continued growth trajectory, and modest long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.630, down by 1.128% on 27 November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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