Stocks’ Details

ZIP CO LIMITED

Offering of Senior Convertible Notes: ZIP CO LIMITED (ASX: Z1P) offers point-of-sale credit and payments to customers. The market capitalisation of the company as on 15 April 2021, stood at ~$5.31 billion. As per a recent update, the company has announced a $400 million senior convertible notes offering due in 2028. It plans to use the proceeds to support core and international growth opportunities. The Notes are convertible into fully paid ordinary shares of Z1P at the initial conversion price of $12.39 per share.

Q3FY21 Trading Update: The company has reported Group revenue of $114.4 million during the period, reflecting an increase of ~80% y-o-y. The quarterly transaction volume stood at $1.6 billion. The transaction numbers grew by ~195% y-o-y to 12.4 million in Q3. There was also an increase in the merchants on the platform to 45.3k. Some of the renowned merchants has joined the company’s platform during the given period and includes Microsoft, Boohoo, JD Sports, JB HiFi, to name a few.

Q3FY21 Performance Update (Source: Company Reports)

Outlook: The company has witnessed continued momentum in Quadpay with decent growth being delivered through its differentiated approach. The growth in key metrics in Q3FY21 demonstrates the increased traction in business and the adoption of Z1P's products by consumers.

Key Risks: The company’s mode of operation is dependent on technology and any disruptions to it might impact the business of the company.

Valuation Methodology: EV/Sales Multiple 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: On 31 March 2021, the company has announced that it has entered into a partnership with JB Hi-Fi Limited under which it will provide an integrated payments solution for both JB Hi-Fi and The Good Guys. As per ASX, the stock of Z1P is trading above its average 52-weeks’ levels of $1.810-$14.530. The stock of Z1P gave a positive return of ~27.67% in the past six months and a positive return of ~8.09% in the past one week. On a technical analysis front, the stock of Z1P has a support level of ~$7.972 and a resistance level of ~$9.833. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the decent financial performance and transaction volumes. For the purpose, have taken peers such as Prospa Group Limited (ASX: PGL), Humm Group Limited (ASX: HUM), WISR Limited (ASX: WZR), to name a few. Considering the expected upside in valuation, current trading levels, robust performance in Q3FY21 and increased acceptance of its payment solutions, we recommend a ‘Hold’ rating on the stock at the current market price of $8.95, down by 6.868% as on April 15, 2021.

Wisr Limited

Q3FY21 Performance Update: Wisr Limited (ASX: WZR) is a marketplace lender and provides lending services to Australian consumers. The market capitalisation of the company as on 15 April 2021, stood at ~$268.60 million. During the quarter, the company posted loan originations growth of ~151% y-o-y to $97.8 million and an increase of 17% on the previous quarter. The total loan origination stood at $488.3 million as of 31 March 2021. It has witnessed decent traction in the secured vehicle loan product during the period. The Wisr Warehouse loan funding facility was upsized to $350 million in Q3FY21.

Growth in Loan Origination (Source: Company Reports) 

Outlook: The company will announce further warehouse expansion to meet loan funding requirements in Q4FY21. It has been witnessing increased traction for its product offerings with more customers looking for a smarter, unbiased experience.

Key Risks: The company faces the risk of the loans being unsecured and not back by any collateral. It is also exposed to interest rate risk, as it depends on borrowings for a major part of its funding. 

Valuation Methodology: EV/Sales Multiple 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: As per ASX, the stock of WZR is trading above its average 52-weeks’ levels of $0.110-$0.275. The stock of WZR gave a positive return of ~35.3% in the past three months and a positive return of ~19.04% in the past one week. On a technical analysis front, the stock of WZR has a support level of ~$0.2408 and a resistance level of ~$0.2745. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the robust growth in loan originations and up-size of funding facility. For the purpose, have taken peers such Zip Co Limited (ASX: Z1P), Humm Group Limited (ASX: HUM), Plenti Group Limited (ASX: PLT). Considering the valuation, current trading levels, decent financial performance in Q3FY21, impressive growth in loan originations and demand for the product offerings, we recommend a ‘Hold’ rating on the stock at the current market price of $0.250, up by 2.040% as on April 15, 2021.

Quickfee Limited

Business Update: Quickfee Limited (ASX: QFE) provides the QuickFee technology platform and fee funding lending solution. The market capitalisation of the company as on 15 April 2021, stood at ~$74.43 million. As per a recent update, there has been an increase in the interests of TIGA Trading Pty Ltd in the company to 28,328,845 ordinary shares as of 18 March 2021.

H1FY21 Results Update: During the period the revenues grew by ~22% to $4.5 million, compared to the previous corresponding period. There was a corresponding increase in the gross profit to $3.2 million. It reported a net loss of $2.9 million during the period. There was a significant improvement in the cash position of the company to $30.5 million as of 31 December 2020, compared to $15 million as of 31 December 2019.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company has witnessed continued growth across platform transactions, lending and new clients in the United States. The launch of its product QuickFee Instalments in the US and Australian markets further augurs well for the company.

Key Risks: The company operates in a sector where there is a risk of default by the borrowers. It is also faced with possible credit risk which could lead to an inadequate level of provisions.

Stock Recommendation: The company has successfully completed capital raise of $17.5 million during H1FY21, which positions it well to take on further growth opportunities. The stock of QFE is trading below its average 52-weeks’ levels of $0.215-$0.975. The stock of QFE gave a positive return of ~51.11% in the past one year and a negative return of ~20.930% in the past three months. On a technical analysis front, the stock of QFE has a support level of ~$0.311 and a resistance level of ~$0.406. On a TTM basis, the stock of QFE is trading at a P/CF multiple of 18.8x, lower than the industry average (Professional & Commercial Services) of 26.1x. Considering the current trading levels, valuation on TTM basis, improved top-line performance, comfortable cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.340, up by ~1.492% as on April 15, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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