Stock Details 

Zip Co Limited

Decent Growth in 1HFY21 Revenue: Zip Co Limited (ASX: Z1P) provides point-of-sale credit and online payment services to the home, retail, health, and other industries in Australia, New Zealand, US, UK. It owns a personal financial management tool (Pocketbook) and offers SME and consumer products. As of 30 March 2021, the market capitalisation of the company stood at ~$4.08 billion. The company issued 56,768 fully paid ordinary shares under an Employee Incentive Plan on 30 March 2021. The Group delivered revenue of $160.02 million in H1FY21, up by 130% YoY. It generated a positive Cash EBITDA with improved cash gross profit margins of 54% in H1FY21. Its receivables/ loan book recorded $1.7 billion, up 42% YoY.  Z1P has now over 5.7 million active customers, up by 217% on pcp. The company gained several key partnerships with Harvey Norman, Domayne and Gamestop, Fanatics, Sunglass Hut in Australia, and the US. In August 2020, Z1P completed the acquisition of Buy Now Pay Later (BNPL) firm Quadpay to speed fast its US growth. Its total transaction volume (TTV) has increased >130% since acquisition. During the period, Z1P made several investments in BNPL across Europe and the Middle East. It held a cash and cash equivalents balance of $217.75 million as of 31 December 2020.

1HFY21 Financial Highlights (Source: Company Reports)

Key Risks: The company faces the risk of competition from a host of existing and new players in the BNPL space, technology disruptions, expansion through partnerships, increase in merchant and consumer base with new service offerings. 

Outlook: The company has entered the US through an acquisition of Quadpay and launched BNPL in the UK as well. In Canada, Z1P is currently in pilot and scheduled for a soft launch in 2HFY21 for its BNPL services to support the US merchants. It has a robust retail partnerships pipeline with merchants globally.

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 Z1P gave a positive return of 36.11% in the past three months and a positive return of 14.84% in the past six months. The stock is trading lower than the average 52-week price level range of $1.415 and $14.530. The stock of Z1P has a support level of ~$6.675 and a resistance level of ~$8.16. 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 Afterpay Limited (ASX: APT), Money3 Corp Limited (ASX: MNY), Humm Group Limited (ASX: HUM), etc. We believe that the company can trade at a premium to its peer average, considering its record revenue in 1HFY21, the highest TTV, and the higher loan book. Considering the current trading levels, decent financial performance in 1HFY21, higher net cash flows from operating activities, growing footprint of BNPL services and valuation, we give a ‘Hold’ rating on the stock at the current market price of $7.350, down by 0.676% on 30 March 2021. 

Fatfish Group Limited

Pre-Series A Funding Raised by Fatberry: Fatfish Group Limited (ASX: FFG) is a technology venture with business investments in a diversified portfolio in esports, video games, fintech and consumer internet technologies. FFG has 50.1% in Abelco Investment Group AB (NGM: ABIG). Both the companies operate from tech hubs in Kuala Lumpur, Singapore, and Stockholm. As of 30 March 2021, the market capitalisation of the company stood at ~$103.27 million. On 26 March 2021, FFG announced a capital raise of $0.8 million in the Pre-Series A round by its investee firm Fatberry Sdn Bhd (“Fatberry”) for its product development and expansion plans. FFG also reported the robust monthly revenue growth of ~6800% of “Fatberry” during June 2020 and February 2021. FFG and its subsidiary Abelco Investment Group AB (“Abelco”) are also investing $285k and $329k, respectively to increase their stake from 53.3% to 61% (aggregate) in “Fatberry”. Both the companies will use their working capital to fund this investment.

A Look at the FY20 Results: The company reported a fall in revenue to $698k in FY20, down by 75% in FY19. FFG recorded profit from ordinary activities of $2.13 million in FY20, up by 118% YoY in FY19. During FY20, FFG completed the merger of Fatfish Global Venture AB’s (“FGV”), its subsidiary with Swedish ABIG (“Abelco”), resulting in a 50.1% stake in ABIG. FFG reported an EPS of 0.26 cents per share in Y20 versus a loss of 1.73 cents per share in FY19. Its net assets during FY20 increased to $18.2 million, up by 57% YoY. FFG held a cash and cash equivalents balance of $1.05 million as of 31 December 2020.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company faces the risk of new technological disruptions, changes in the demand, income, and preferences of consumers to use its services, COVID-19 market uncertainties and volatility.

Outlook: FFG has recently launched its BNPL services through Smartfunding and Fatberry online insurance (its two financing businesses). It focuses on growing these newly established businesses. With the understanding of the Southeast Asian tech landscape, FFG hopes to expand its core businesses over the next two years.

Stock Recommendation: The stock of FFG gave a positive return of 203.03% in the past three months and a positive return of 488.23% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.005. The stock of FFG has a support level of ~$0.085 and a resistance level of ~$0.127. Considering the current trading levels, maiden profit in FY20, decent outlook of newly launched services, higher ROE and associated risks of COVID-19 and shifting consumer spending and preferences, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.100, down by 9.091% on 30 March 2021. 

MPower Group Limited

Fifth Solar Project Connection to the National Grid: MPower Group Limited (ASX: MPR) is involved in battery storage, renewable energy, and microgrid business offering on-grid and off-grid power solutions. As of 30 March 2021, the market capitalisation of the company stood at ~$27.27 million. MPR announced that its fifth 5MWac solar project has been connected to the national electricity grid at Kadina in South Australia. It also announced a grant of three more exclusive renewable energy sites in Victoria, increasing the potential pipeline of Build Own Operate (BOO) sites to six.

$5 million Capital Raising: On 26 February 2021, MPR declared firm commitments to raise $5 million (before costs) in new capital to progress its BOO strategy and for working capital needs. MPR will issue ~58.8 million shares at $0.085 per share in two tranches to corporate investors. It completed tranche one placement on 4 March 2021 and will conduct tranche two placement post-EGM’s approval in April 2021.

A Look at the 1HFY21 Results: The company reported a revenue of $7.63 million from its continuing operations, up by 22% YoY during 1HFY21. Its EBITDA stood positive at $0.06 million in 1HFY21 versus a $1.40 million loss in 1HFY20 due to the financial benefits from the transformational measures completed in FY20. In 1HFY21, MPR advanced development on its two 5MWac solar farm projects worth $9 million. Its service division performed well, completed new contracts in the data centre and hospital sectors for 1HFY21. MPR is focusing on growing a pipeline of potential Build Own Operate renewable energy sites rapidly. MPR was granted JobKeeper benefit and Cashflow Boost payments in HFY21. It held a cash balance of $2.93 million in 1HFY21.

1HFY21 Financial Highlights (Source: Company Reports)

Key Risks: The company faces the risk of COVID-19 uncertainties, connecting large capacity sites to the national grid, seeking sites/assets from user-industries/ clients, meeting its target of achieving a desired portfolio growth.

Outlook: MPR has begun the commissioning phase at the Kadina project and is slated for commercial operations in the coming weeks. The company targets to achieve a portfolio of 20 renewable energy sites with a 100MWac aggregate capacity across states and a forecasted value of $150 plus million upon entire operation.

Stock Recommendation: The stock of MPR gave a positive return of 124.13% in the past three months and a positive return of 364.28% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $0.165. The stock of MPR has a support level of ~$0.124 and a resistance level of ~$0.141. On a TTM basis, the stock of MPR is trading at a Price to Cash Flow multiple of 139.9x higher than the industry (Electric Utilities & IPPs) average of 19.1x, thus seems overvalued. Considering the current trading levels, increased top line for 1HFY21, significant returns in the past three months and past six months, and valuation on a TTM basis, we believe that most of the company’s positives have been factored in at the current trading levels. Hence, we suggest investors to wait for better entry levels, and we give an ‘Expensive’ rating on the stock at the current market price of $0.130, down by 13.334% on 30 March 2021. 

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