Zip Co Limited

Decent Performance in Q1FY19: Zip Co Limited (ASX: Z1P) is a small-cap company with the market capitalization of circa $284.2 Mn as of November 22, 2018. It is into the business of offering point-of-sale credit and digital payment services to consumers and merchants. Recently, the company posted decent Q1FY19 performance wherein revenue grew by 14% to $15.0 Mn over the prior quarter. It was mainly supported by the rise of 11% in transaction volume in Q1 FY19 against Q4FY18. Moreover, the group’s receivable portfolio increased to $360.1 Mn at 30 September 2018, an increase of 14% on a Q-o-Q basis.  Based on the performance, the company recorded positive cash EBTDA (cash earnings before tax depreciation and amortization) for the first time. Of which, revenue yield remained stable at 17.5% in Q1FY19 vs 17.6% in Q4FY18 while cash cost of sales as a percentage of quarterly average receivable fell from 9.7% in Q4 to 8.8% in Q1FY19. By looking at the Q1FY19 financial dashboard, for the medium term, the company has targeted revenue yield, cash cost of sales, and cash operating costs to 20%, 8%, and 5%, respectively. On the balance sheet front, current ratio stood at 33.19x in FY18 while debt-to-equity ratio came in at 8.68x. As at 30 September 2018, the company had cash and cash equivalent of $12.67 Mn, representing decent cash position.


Financials Metrics (Source: Company Reports)

On the other hand, the company entered into the partnership with Bunnings Group Limited to offer Zip interest-free payments to its customers. According to the management, Bunning would be a great fit for the company as it will provide their customers with a better way to pay, over time, and interest-free facilities. Additionally, the relationship with Bunnings is line with the Zip’s strategic vision of partnering with Australia’s largest retailers, providing consumers with choice whilst expanding the network of acceptance for Zip’s growing customer base. It is expected that Zip will be live throughout the Bunnings Australian store network, by early December 2018. Over the period, Z1P has been gradually building its customer base and it had entered into synergistic agreements to propel its core business growth. In our view, these strategic initiatives will help to strengthen the core business in future resulting to topline growth of the company.

Meanwhile, the stock has fallen 7.35% in the past three months as at November 21, 2018 and traded below the average of 52 week high and low prices of $0.9875. Based on foregoing and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $0.960.
 

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