Afterpay Touch Group Limited

A Quick Look at Business Update: Afterpay Touch Group Limited (ASX: APT) is an Australia registered company which is involved in the technology software and services business. On 6^th June 2019, the market capitalisation of APT stood at ~A$5.71Bn. Today, on 6^th June 2019, the company with the help of release made an announcement which is related to key business and regulatory developments.In the context of global business, it stated that the underlying sales were ~ $4.7Bn, which reflects a rise of 143% when compared on pcp basis. There are more than 4.3 million active customers who are transacting with Afterpay at the end of May, which are increasing with an average of around 7,900 new customers per day since 31 December 2018. At the end of May, Afterpay had done partnerships with around 30,600 active merchants. The company’s strategy remains focused on the global merchant and customer growth, platform innovation and global support and infrastructure, given an increased appreciation of the size of our global market opportunity and confidence in the differentiated value proposition.

On 3^rd May 2019, the company made an announcement that it had inked a US$300 million receivables funding facility with Citi in order to support the expansion of Afterpay’s US business.Adding to that, the new facility would provide the company’s US business with access to external funding to support in excess of US$4 billion in annual underlying US sales.

Key Takeaways From 1H FY19 Results Presentation: With respect to platform growth, Afterpay’s underlying sales witnessed a growth of 147% in 1HFY19 on pcp basis.The total income of the group increased by 91% on pcp. The gross losses have significantly declined to 1.1% from 1.6% on pro forma basis. The company possesses a robust balance sheet wherein it had completed the equity capital raising in September 2018 and it also has significant growth headroom.


 Key Metrics (Source: Company Reports)

Future Strategies: APT is planning to make at least an additional A$10 million investment in 2HFY19. In the short-term (i.e. 2H FY19- FY21), the company is planning to maintain positive performance in its EBITDA despite short term margin mix impact, marketing and fixed cost investment. With respect to its mid-term strategy, it is expecting higher returning customer mix from the larger base as well as lower losses. 

Stock Recommendation: The company supports the proposed ASIC product intervention powers. It is strongly supportive towards the regulatory developments. The current ratio stood at 7.80x in 1HFY19 when compared to the industry median of 2.81x. This implies that the company is in a decent liquidity position to address its short-term obligation in comparison to the broader industry. The gross margin of the company stood at 77.0% in comparison to the industry median of 73.6%.

Coming to the stock’s past performance, it witnessed a rise of 20.10% and 74.58% in the time span of three months and six months, respectively. As per ASX, the stock is trading slightly towards the 52-week higher levels of $28.700. Hence, considering the above-stated facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of A$23.450 per share (down 1.883% on 6^th June 2019).

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