Zip Co Limited

Z1P Details

Fastest Growing BNPL in the US: Zip Co Limited (ASX: Z1P) provides digital retail finance and payments solutions to home, retail, automotive and travel industries. Z1P also holds a personal financial management tool named Pocketbook. It operates in Australia, New Zealand, South Africa, UK and the USA. As per the company’s reports, Z1P has become the fastest growing Buy Now Pay Later (BNPL) players in the US. During 1HFY21, Z1P has delivered a 100% YoY growth across key metrics. Z1P is leading the BNPL segment with over 5.7mn customers, annualized Total Transaction Value (TTV) of c.$7.5bn and an annualized revenue of c.$480mn. After the completion of Quadpay acquisition in August 2020, the business in US has grown more than 130% in terms of TTV in 4 months.

Exceptional Financial Performance: As per the company reports, Z1P has registered a 141% YoY growth in its TTV during H1FY21 to $2,320.6 million as compared with $964.7 million in H1FY20. The revenues grew by 131% YoY during H1FY21 to $159.8 million from $69.1 million in H1FY20. The company has posted a cash gross profit of $86.1 million in H1FY21 against $35.6 million in H1FY20, but due to higher cash operating costs, the cash EBITDA declined from $1.5 million in H1FY20 to $0.2 million in H1FY21.

Financial Highlights (Source: Company Reports) 

Outlook: As per the company reports, Z1P will focus on four strategic priorities – payments acceptance, App engagement, Global expansion, and Zip businesses. With a recent acquisition of Quadpay, Z1P is looking forward to growing in the US markets.

Valuation Methodology: EV/Sales based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, the stock of Z1P has provided a return of 58.89%, and in the last three months, it has provided a return of 94.23%. The stock is currently trading above the average 52-week price level range of $1.050-$14.530. On the technical analysis front, the stock has a support level of ~$7.73 and resistance of ~$13.009. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer average, considering a rapid growth in US markets and robust financial performance. For the purpose, we have taken peers Tyro Payments Ltd (ASX: TYR), OpenPay Group Ltd (ASX: OPY), Afterpay Ltd (ASX: APT) and more. Considering the company’s decent financial performance in H1FY21, anticipated benefits from the acquisition of Quadpay, growth in US business, decent long-term outlook and valuation, we recommend a “Hold” rating on the stock at the current market price of $10.95, down by 7.673% as on 25 February 2021.

Z1P Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Humm Group Limited

HUM Details

Significant Uptick in Active Customers: Humm Group Ltd (ASX: HUM), formerly known as FlexiGroup Limited, is an Australia-based full-service payments company. The Company's offerings include buy now pay later (BNPL), revolving credit and small and medium enterprise (SME) finance. Its segments include BNPL, New Zealand Cards, Australia Cards and Commercial and Leasing. HUM provides an interest-free payment platform with repayment options from 10 weeks to 60 months. As per the company reports, during 1HFY21, there has been a significant increase in active customers. The active customers increased by 40.4% to 2.62mn in 1HFY21 as compared with 1.87mn in 1HFY20. Moreover, other key metrics have been improving such as number of retail partners have been increased from 69,000 in 1HFY20 to 78,100 in 1HFY21, representing an increase of 13.2% YoY. Total apps download has seen a growth of 89% to 540K in 1HFY21 from 287K in 1HFY20.

Active Customers (Source: Company Reports)

Strong Business Growth: HUM has registered a cash NPAT of $13.8mn in 1HFY21 as compared with $9.4mn in 1HFY20, similarly volume is up by 46.9% on the back of strong origination growth in Australia keeping a focused approach on lending via the broker channel. The company was able to reduce its operating cost by 29.3% from simplifying the Australia Commercial business and from consumer leasing.

Small Businesses to Benefit with New Product Launches: As per the company report on 19 February 2021, HUM has launched Business Now Pay Later (“BuNPL) product. BuNPL has been designed to meet the working capital required to carry out small to medium businesses (SMEs) across Australia and New Zealand mainly after businesses returning to normal after pandemic situation.

Outlook: As per the company reports, HUM will make higher provisions as a prudent step to monitor any potential impact on arrears and losses from changes in government stimulus. HUM will be making investments in platforms, marketing and people as the company has entered in two international markets, due to which HUM is expecting lower cash NPAT in 2HFY21 as compared with 1HFY21. 

Valuation Methodology: EV/Sales based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, HUM has decreased by 9.46% and by 11.64% during the last three months on ASX. The stock is currently trading below its 52-week price level range of $0.369-$1.814. On the technical analysis front, the stock has a support level of ~$0.956 and a resistance of ~$1.274. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer median, considering a strong business growth and uptick in active customers. For the purpose we have taken peers Tyro Payments Ltd (ASX: TYR), EML Payments (ASX: EML), Afterpay Ltd (ASX: APT) and more. Considering decent business growth in the long run, an uptick in active customers, valuations, and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.055, down by 2.315% as on 25 February 2021.

HUM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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 personalised advice.