Afterpay Limited

APT Details

$1.5 Billion Convertible Notes Settlement: Afterpay Limited (ASX: APT) is a provider of technology-enabled payment solutions for businesses and consumers via its Afterpay and Pay Now services. As of 25 March 2021, the market capitalisation of the company stood at ~$30.72 billion. On 23 March 2021, Blackrock Group became a substantial holder in APT and it now holds ~14.80 million securities with a voting power of 5.18%. On 12 March 2021, APT announced the settlement of zero-coupon convertible notes of $1.5 billion maturing in FY26 and fulfilled the conditions of the agreement for the Matrix Transaction and Tender Offer to increase its underlying interest in Afterpay US, Inc to ~93% from 80%.

Acquisition of Pagantis Completed: On 10 March 2021, APT declared the completion of the acquisition of Pagantis (Pagantis SAU and PMT Technology SLU) under a Share Purchase Agreement (SPA) to acquire 100% of its share capital via its wholly-owned subsidiary Clearpay Limited (Europe). The deal is intended to expand the European footprint of APT.

1HFY21 Financial Highlights: The Group reported a total income of $417.2 million for 1HFY21, up 89% YoY due to the growth in customer orders processing via its platform. APT saw increased customer and merchant demand across all its regions, mainly from the UK and North America. Its EBITDA also stood higher at $47.9 million, up by 521% on YoY. It incurred a net loss after tax of $79.2 million for 1HFY21. It reported higher cash receipts of $8,443.8 million in 1HFY21 vs $4,117.5 million in 1HFY20. It held cash and cash equivalents of $458.79 million as of 31 December 2020.

1HFY21 Result Highlights (Source: Company Reports)

Key Risks: APT runs the risk of low-value transactions and low-volume due to competition and platform issues. It also faces the risk of technology upgrade as required on the platform to accelerate payment processing and changes in the fin-tech companies’ regulatory landscape.

Outlook: APT plans to advance with the roll-out of its Clearpay services in Europe with Pagantis under its umbrella. It plans to go live first in France, Spain, Italy, to access their combined e-commerce market exceeding ~€150 billion.

Stock Recommendation: The stock of APT gave a positive return of 85.27% in the past nine months and a positive return of 603.06% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level of $13.58-$160.05. The stock of APT has a support level of ~$99.76 and a resistance level of ~$112.46. On TTM basis, the stock is trading at a price to book value multiple of 17.8x, higher than Industry median of 3.1x, thus seems overvalued. Considering the current trading levels, significant returns in the past nine-months and one-year, and valuation on TTM basis, we believe that most of the company’s positives have been factored at the current juncture. Hence, we suggest investors wait for better entry levels, and we give an ‘Expensive’ rating on the stock at the current market price of $105.460, down by 1.898% on 25 March 2021.

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

Humm Group Limited

HUM Details

Expanded BNPL Portfolio with Health & Well-Being Sectors: Humm Group Limited (ASX: HUM) is a full-services payments provider including BNPL (buy now pay later), revolving credit and small and medium enterprise (SME) finance. As of 25 March 2021, the market capitalisation of the company stood at ~$475.45 million. HUM recently announced its new string of partnerships with Maven Dental Group, CPAP Clinic, Aidacare, and other companies in the wellbeing and health vertical in New Zealand and Australia. HUM reported growth in its average transaction size to $4k, signalling its ability to finance larger transactions. 

Record ABS-Transaction: On 17 March 2021, HUM notified the market regarding its ABS (asset-backed securities) priced at $450 million on the back of a fully amortised underlying pool of secured commercial auto and equipment finance receivables. HUM expects to have issued $700 million of ABS notes pursuant to the close of this transaction during FY21. The company has notified 25 March 2021 as the due date for transaction settlement.

A Look at the 1H21 Results: The company reported a fall in revenue to $225.2 million, down by 6.4% YoY for 1HFY21 due to lower interest income from the Cards business. After tax to the shareholders, its net profit stood at $38.6 million, up by 16% YoY for 1HFY21. HUM paid a find dividend of 3.85 cents per share for FY20 and an interim dividend of 3.85 cents per share during 1HFY21. Both were fully franked at a 30% tax rate. HUM’s ROE increased to 13.1% in 1HFY21 versus 11% in 1HFY20 owing to higher Cash NPAT and reduced costs. It held a cash and cash equivalents balance of $175.1 million as of 31 December 2020.

1HFY21 Result Highlights (Source: Company Reports)

Key Risks: The company meets the risk of lower receivables in cards during the peak of COVID-19, risks reduction in volumes due to travel restrictions, and a conservative risk framework.  

Outlook: HUM has plans to launch BNPL services in 2HFY21 in the UK and Canada. The UK has already signed with over 200 retailers and has a robust pipeline of merchants. In Canada, it engages in talks with a few market participants and will declare strategic alliances on the launch of the services. As the Group plans to make new investments as it enters the above markets, it anticipates lower Cash NPAT in 2HFY21 versus 1HFY21.

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: The stock of HUM gave a negative return of 15.58% in the past three months and a positive return of 136.53% in the past one year. The stock is currently trading slightly higher than the 52-weeks’ average price level of $0.402-$1.48. The stock of HUM has a support level of ~$0.911 and a resistance level of ~$1.085. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For this purpose, we have taken peers like Sezzle Inc (ASX: SZL), Splitit Limited (ASX: SPT), Openpay Group Limited (ASX: OPY), to name a few. We believe that the company can trade at some discount compared to its peer average, considering its lower interest and fee income, no interim dividend declaration and the risks associated with the pandemic, its impact on the volume of transactions, and impairment losses on customer loans. Considering the current trading levels, increase in the bottom-line, growth in customers, total transactions, and BNPL volumes in 1HFY21, growth outlook for UK and Canada, valuation, and associated risks of fall in interest and fee income, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.975, up by 1.562% on 25 March 2021.

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

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