Stocks’ Details
 

Afterpay Limited

Afterpay Reaches 5 million Active Shoppers in the U.S.: Afterpay Limited (ASX: APT) provides technology-driven payment solutions through its Afterpay and Pay Now services and businesses. As on 17 June 2020, the market capitalization of the company stood at ~$15.14 billion. The company has stated that ~9 million U.S. consumers have joined the company’s platform, which includes over one million new customers using the platform during the COVID- 19 period. 

Healthy Balance Sheet and Increase in Underlying Sales: During the quarter ended 31 March 2020, APT reported a healthy balance sheet and is adequately capitalized with no requirement to raise capital in the foreseeable future. The company has a solid liquidity position of $719.2 million to support its operations. Accelerated growth in the U.S. and continued significant contribution from ANZ resulted in an increase of 105% in global underlying sales to $7.3 billion compared to FY19 YTD.


Quarterly Financial and Operational Highlights (Source: Company Reports)

Growth Opportunities: During the quarter, the company marked an increase in daily underlying sales, illustrating customer appetite to a sudden change in work and living conditions. The expansion of the company in Canada is progressing well and it is targeting to enter into this new region this calendar year. The company is aiming to exceed its underlying sales mid-term target of ~$20 billion by FY22.

Key Risks: APT might face challenges of low-value transactions. The company must constantly keep updating its platform as customers immediately suspend themselves from making further purchases if a single payment is late. Implementing tighter rules may place some constraint on maximizing underlying sales growth in the short term.

Stock Recommendation: As per ASX, the stock of APT gave a return of 93.16% in the past six months and a return of 33.59% in the past one month. The stock is trading close to its 52-weeks’ high level of $58.46 and thus seems overvalued. On a trailing twelve months (TTM) basis, the stock is trading at an EV/Sales multiple of 30.7x, higher than the industry average of 5.5x. Considering the attractive returns, decent fundamentals, key risks in the uncertain environment and current trading levels, we recommend our investors to keep an eye on the business activities and suggest an ‘Expensive’ rating on the stock at the current market price of $57.73, up by 2.141% on 17 June 2020.

Pushpay Holdings Limited

Strong Growth, Expanding Operating Margin: Pushpay Holdings Limited (ASX: PPH) provides a donor management system, including donor tools, finance tools and a custom community app. As on 17 June 2020, the market capitalization of the company stood at ~$1.85 billion. During FY20, revenue of the company went up by 32% to US$129.8 million, and gross margin went up to 65% from 60% in the pcp. In the same time span, customers of the company grew by 42% to 10,896. During the year, profit before tax was US$21.7 million and total processing volume increased by 39% to US$5 billion.

 
Growth in Revenue (Source: Company Reports)

What to Expect: Although several organizations are temporarily closing their physical premises due to the spread of COVID-19, PPH saw a clear shift to digital as major services are moving online. It has witnessed increased demand for its services and remains well-equipped to support customers to leverage digital technology. It is expecting EBITDAF in the range of US$25 million to US$27 million for FY21, and gross margin of over 63%.
Key Risks: The company is subject to several financial risks, including liquidity risk, credit risk and market risk. It also bears interest rate risk arising from its cash and cash equivalents and borrowings and does not hold any interest rate hedges or forward rate agreements.

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: As per ASX, the stock gave a return of 70.48% in the past six months and a return of 1.67% in the last one month. It is trading very close to its 52-weeks’ high level of $7.360 and thus seems overvalued. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a downside of lower single-digit (in percentage terms). For the said purposes, we have considered Afterpay Ltd (ASX: APT), EML Payments Ltd (ASX: EML), etc. as peers. Considering the current trading levels, returns in the past one month, softer market conditions due to the global pandemic and key risks, we recommend our investors to wait for the price correction and suggest a watch stance on the stock at the current market price of $7.07, up by 5.522% on 17 June 2020.

EML Payments Limited

Decent Increase in GDV and Revenue: EML Payments Limited (ASX: EML) issues pre-paid financial cards to its customers. As on 17 June 2020, the market capitalization of the company stood at ~$1.37 billion. For the nine months ended 31 March 2020, Gross Debit Volume of the company went up by 55% to $9.83 billion, and gross profit margin witnessed an increase and stood at 75.9%, up from 73.7% in the pcp. In the same time span, revenue of the company went up by 20% to $87.1 million, and EBITDA witnessed a growth of 24% to $27.0 million. EML retains a strong balance sheet and holds over $125 million in cash.


Financial Highlights (Source: Company Reports)
 
Key Risks: Due to social distancing restrictions associated with COVID-19, retail malls segment of the company remained closed. The gradual opening of malls should represent an improvement to the trading conditions but is highly dependent on various factors such as consumer behavior and market conditions.  

Growth Opportunities: The company will continue to grow volumes by identifying opportunities offering significant payment volumes. It is also likely to benefit from customized payment solutions to improve their offerings or current processes. 

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: As per ASX, the stock of EML gave a return of 83.57% in the past three months and a return of 14.8% in the last one month. EML has started several integration projects and expects to complete those over the next 24 months. Net run rate of synergies is expected at ~$6 million, likely to start in FY22. We have valued the stock using the EV/Sales multiple based illustrative relative method and have arrived at an indicative target price offering an upside of higher single-digit (in percentage terms). For the said purposes, we have considered Pushpay Holdings Ltd (ASX: PPH), Tyro Payments Ltd (ASX: TYR), etc. as peers. The stock is inclined towards its 52-weeks’ high level of $5.7 but holds the potential for growth as depicted by the EV/Sales valuation methodology. Considering the current trading levels, decent returns in the past one month, and positive outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $3.930, up by 3.421% on 17 June 2020.

Splitit Payments Ltd

Record Merchant Sales Volume Growth: Splitit Payments Ltd (ASX: SPT) provides a credit card based instalment solution to businesses and merchants. As on 17 June 2020, the market capitalization of the company stood at ~$241.37 million. During the month of May, the company reported record monthly Merchant Sales Volume of US$25.8 million and Total Unique Shoppers surpassed the mark of 290K. The strong performance of the company is the result of large new merchants which went up by 12% to 964.

During the quarter ended 31 March 2020, SPT saw a strong growth of 104% in revenue to US$657,000 and reported an increase of 57% in Average Order Value (AOV) to US$737. 


Quarterly Financial and Operational Highlights (Source: Company Reports)

Key Risks: The company is subject to several financial risks, including liquidity risk, credit risk and market risk. Tighter rules due to the spread of the virus are likely to pose some challenges. The consumer is more likely to spend on the essentials and is expected to be more cautious of any credit risk. However, the company is targeting a more affluent and high credit quality demographic, which is financially and digitally sound.
What to Expect: The company continues to expect strong merchant demand due to the acceleration in the eCommerce platform. SPT witnessed growth in its share of checkout with merchants, helping them meet the changing consumer needs. The company remains confident in the growth prospects with the continued execution of its refreshed strategy. 

Stock Recommendation: The company is uniquely positioned for the upcoming growth prospects. It is building strong partnerships with global eCommerce retailers and is pursuing strategies to improve its conversion rates during and beyond the Coronavirus pandemic. As per ASX, the stock of SPT gave a return of 67.07% in the past one month. Considering the attractive returns in the past one month, growth opportunities and decent financial position, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.66, down by 3.65% on 17 June 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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