AfterPay Touch Group Limited (ASX: APT)

Focus on Global Expansion and Product Capabilities - AfterPay a technology driven payments company, announced that it will commence transacting in the United States in a phased approach with a number of significant lifestyle retailers and will provide U.S. customers with a new way to pay. U.S. launch partners include Urban Outfitters, Inc. (URBN), whose brands include Anthropologie, Free People and Urban Outfitters. URBN is one of the largest lifestyle fashion retailers in the U.S. with total sales volume in the order of US$3bn across stores and digital channels in the US, which is broadly equivalent to the size of the total Australian online fashion market. The size of the US market is substantial and represents a significant opportunity for Afterpay like The U.S. online fashion market alone is US$60 billion as compared with Australian market of US$3.0 billion. Afterpay will commence in the US as an online only platform with an intention to introduce in-store capability in due course. Matrix Partners invested approximately $19.4 million in Afterpay Touch in January 2018, with those funds earmarked to invest in the U.S. launch and market development strategy in the first 12-month period.

Australia and US Market Comparison (Source: Company Reports)

Afterpay’s value proposition is clearly resonating. Early engagement has been positive across Afterpay’s initial target market with over 50 retailers having signed contracts or term sheets which are at varying stages of integration. Over 1.8 million customers in Australia and New Zealand have transacted with Afterpay and are supported by over 14,000 enterprises and small to medium businesses. Afterpay has maintained low default rates relative to all market comparators as the Group assumes all customer non-payment risk and doesn’t allow customers to keep transacting if they can’t make a payment. Early engagement has been positive across Afterpay’s initial target market with over 50 retailers having signed contracts or term sheets which are in varying stages of integration. The Group has a strong balance sheet with a significant excess cash on hand and with a diversified funding source. In past six months, the price was up by 57.95 per cent and is trading at a point near to 52-week high level. The stock climbed up by 4.78 per cent as on 05 June 2018 as the U.S technology sector rose overnight. Hence, we maintain our “Hold” recommendation at the current market price of $8.54, considering ongoing developments that involve expansions and new innovations which are the drivers for sustainable growth.
 

Appen Limited (ASX: APX)

High Demand for Artificial Intelligence - Appen, is a Company that develops high-quality, human-annotated data sets for machine learning and artificial intelligence. It is expected that the AI market is poised for massive growth in the coming years. The annual global revenue for artificial intelligence products and services will grow from $643.7 million in 2016 to $36.8 billion by 2025, a 57-fold increase over that time period. The Company issued 50,000 shares (at a considerable price of $10.21 per share) and 223,153 Performance Rights. The Company declared a final dividend for the year ended 31 December 2017 of 3.0 cents per share, fully franked. It is a challenging situation for the Group to maintain cost-competitiveness and to move quickly and with agility. As AI applications are expanding into more industries, another imperative for the company is business development to expand into those verticals where it can gain competitive advantage.


Revenue and Underlying Earnings Performance (Source: Company Reports)

It is worth noting that new competitors are emerging because the pace of its industry is accelerating. The Company reported statutory EBITDA of $22,241k representing a 29 per cent (constant currency: 38 per cent) increase over 2016, including $1,532k from Leapforce. The Group reported 50 per cent growth in the revenue to $166.6 million, 62 per cent growth in the underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $28.1 million and 86 per cent growth in the underlying net profit after tax (NPAT) to $19.7 million. Meanwhile, one of its director Mr Christopher Vonwiller disposed 2,000,000 shares in the market. The stock was up by 39.61 per cent in last six months and rose up by 5.36 per cent in last five days. It moved up by 3.29 per cent on 05 June 2018. The stock looks “Expensive” at the current market price of $10.96 and high P/E compared to peers while we wait for any potential entry opportunity.
 

Aristocrat Leisure Limited (ASX: ALL)

Investing in Technology - Aristocrat, a gaming technology Companyincreasedits share and yield in the land-based North Americas gaming operation business like its Premium Class III grew by 19 per cent to 18,304 units with continued penetration. Average fee per day increased by 3.5 per cent to US$51.40 demonstrating the product performance in the period. It continues to invest in technology as it builds out its land-based adjacencies and by executing its multi-app strategy and by integrating its new businesses. It recorded a Normalised profit after tax and before amortisation of acquired intangibles (‘NPATA’) of $361.5 million for the period (six- months ending on 31 March 2018) representing a 32% increase (36% in constant currency) compared to $273 in the prior corresponding period.


Financial Performance (Source: Company Reports)

Net gearing on a pro forma basis increased to 2.0x (for six months period ending on 31 March 2018) from 0.9x in the prior corresponding period due to the acquisitions of Plarium and Big Fish, funded via cash and incremental Term Loan B debt facility. The stock climbed up by 37.96 per cent in one year and by 37.04 per cent in last six months. The stock slipped by 3.10 per cent on 05 June 2018. Despite the decent performance, the stock looks “Expensive” at the current market price of $29.65.

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.