Afterpay Touch Group Limited

 
Significant Momentum in the U.S. and the UK Markets: Afterpay Touch Group Limited (ASX: APT) offers technology-driven payment solutions for merchants and customers. The company has two divisions Afterpay and Pay Now. The services of APT includes providing credit to the leading retailers. Recently, APT announced regarding the appointment of former U.S. Treasury Secretary Larry Summers, former Reebok CEO Uli Becker, retail veteran Matthew A. Kaness, as members of the Advisory Board. On 16 October 2019, the company issued 49,998 fully paid ordinary shares at the issue price of $16.96 per share, issued upon exercising 49,998 options issued to senior executives of the Company under the Company’s plan.

FY19 Performance Highlights for the Periodended 30 June 2019:Afterpay Touch Group Limited declared its FY19 full-year financial results, wherein it posted global underlying sales at $5.2 billion, up 140% on y-o-y basis and loss after tax of $43.8 million as compared to a loss of $9 million in FY18. Bottom-line was affected due to the inclusion of one-time share-based payment expenses and initial application expenses, relating to the accounting standards. EBITDA, excluding significant items, came in at $28.7 million as compared to $35.2 million in the previous corresponding year. During FY19, APT reported underlying free cash flow of $33.3 million, reflecting a high return on capital employed and adding to balance sheet growth capacity.

During the year, APT witnessed a 130% y-o-y increase in total active customers at 4.6 million while active merchants at the end of the period came in at 32,300, up by 101% on y-o-y basis. The business witnessed a robust growth across the geographies of Australia and New Zealand, with instore growing strongly with over $1 billion underlying sales since inception. The Group reported 91% y-o-y increase in Pro forma income at $272.5 million, aided by higher pro forma income of $251.6 million, up 115% from FY18. Decent set of earnings helped the company in offsetting start-up expenses across the U.S. and UK markets. During FY19, APT reported stable merchant income margins at 3.9% pro forma, driven by decent growth in Enterprise merchant underlying sales.


FY19 Operating Highlights (Source: Company Reports)

The Company witnessed stellar growth across all channels and geographies. The Management highlighted that growth in the U.S. and the UK came in higher than their estimates, primarily due to the on-boarding of new major merchant brands. The Company reported Underlying sales of ~$1 billion across the U.S., during the year. Merchant income margin in the U.S. came as per the merchant income margin of Australia and New Zealand. Upon the launch in the UK under the brand name Clearpay, the company had over 200,000 active customers in the first 15 weeks of trading. Moreover, the period was also marked by new retail partnerships in the UK, including Pretty Little Thing, boohoo, JD Sports and Missy Empire.

Stock Recommendation: The stock of APT is trading at $33.920, with a market capitalization of ~$9.24 billion as at 16 October 2019. The 52-week trading range of the stock stands at $10.360 to $37.410, and currently, the stock is trading towards the upper band of the range. The stock has delivered stellar returns of 53.68% and 46.30% during the last three-months and six-months, respectively. During FY19, the business posted a better than expected growth in the U.S. and the UK regions. The company also received positive feedback for its Clearpay brand, signing in a large number of customers in the initial 15 weeks of the trading. The stock of APT has an enterprise value to sales multiple of 30.6x as compared to the industry median of 1.6x. Hence, considering the aforesaid facts and current trading levels, we put our wait and watch stance on the stock at the current market price of $33.920, down 7.221% as on 16 October 2019.

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