Zip Co Limited

Z1P Details

Plan to Raise $150 million Equity to Fund Growth & Expansion: Zip Co Limited (ASX: Z1P) provides digital retail finance and payments solutions to home, health, retail, automotive and travel industries. Z1P also holds a personal financial management tool named Pocketbook. It operates in Australia, New Zealand, South Africa, UK, and the USA. As on 5^th January 2021, the market capitalisation of the company stood at ~$3.02 billion. The company plans to raise a total of $150 million through a $120 million underwritten placement through institutional investors and another $30 million through a share purchase plan (SPP non-underwritten). During December 2020, Z1P completed the institutional placement underwritten by Merrill Lynch Equities Limited via issue of 22.47 million new ordinary shares at $5.34 per share. The company has opened an optional SPP from 4 Jan-13 Jan 2021 to raise $30 million from the eligible shareholders. This capital raising is to fund growth in the US, UK, and new markets and for product expansion in Australia with Z1P business. The company has entered in partnerships with Harvey Norman, Facebook, and others to provide more customers with access to pay through Z1P’s BNPL platform.

FY21 YTD Trading Update: Z1P generated record results spanning all its markets – Australia, New Zealand, US (QuadPay). UK market is in the launch mode. The revenue generated for Z1P BNPL was up by 91% to $96.7 million for FY21 YTD (July-October 2020). Inclusive of Zip business, the company posted sales revenue of $100.2 million for YTD FY21. Till November, its transaction volume rose to $577.1 million, up by 44% on QoQ. The transaction volume grew over 100% on YoY basis annualizing at c.$7 billion. Its merchant base on the platform went over 36.5k, representing a rise of 74%, on YoY basis. The customer base also increased by 104% on YoY basis to 5.3 million in November 2020. The US brand QuadPay also delivered a record transaction volume of $264.2 million, an increase of 205% on YoY basis. The company’s App also witnessed growth in downloads to over 5.9 million across the board and went up the ranking categories in the US and Australia. Its monthly arrears in Australia dropped from 1.33% in June to 0.89% in October, indicating reduced losses in the future. Z1P has also launched Chrome extension, a new payment way through a virtual card technology feature on any web portal.

YTD October 2020, Result Highlights (Source: Company Reports)

Outlook: The company plans to stay invested in developing its core products, services, and technology platform to enhance customer and merchant experience. It continues to aim for developing a robust financial app (Zip App) in Australia and keep adding new user segments and app features. 

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of Z1P gave a negative return of 23.7% in the past three months and a negative return of 7.97% in the past six months. The stock is trading lower than the average 52-weeks’ price band. The stock of Z1P has a support level of ~$4.818 and a resistance level of ~$6.292. We have valued the stock using an Enterprise Value to Sales multiple based illustrative relative valuation method and have arrived at a target price with an upside of high single-digit (in % terms). For the purpose, we have taken peers like Afterpay Limited (ASX: APT), Sezzle Inc (ASX: SZL), Humm Group Limited (ASX: HUM) and others. Considering the current trading levels, decent YTD FY21 performance, rising top-line over the period of FY16-FY20, growth in business drivers - customer and merchants base, transaction volume, expansion of the portfolio, and valuation, we give a ‘Hold’ recommendation on the stock at the current market price of $5.310, down by 5.009% on 5^th January 2021.

Z1P Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.