Stocks’ Details

Afterpay Limited

Afterpay to Expand into Europe: Afterpay Limited (ASX: APT) provides technology-driven payment solutions for consumers and businesses through its Afterpay and Pay Now services and businesses. As on 26 August 2020, the market capitalization of the company stood at ~$25.9 billion. The company has recently announced that Clearpay (Europe) Limited has entered into a Share Purchase Agreement with NBQ Corporate SLU to acquire 100% of outstanding shares in Pagantis SAU and PMT Technology SLU. Under the terms of the agreement, NBQ will receive a minimum consideration of €50 million. The company expects to complete this acquisition in or before December 2020.

The expansion in the European markets will help APT to capitalize on strong consumer and merchant demand and will increase its global footprint. It has identified the European Union (EU) as the next step for its international expansion with an addressable eCommerce market of over €300 billion. 

FY20 Financial and Operational Update: The company has provided an update regarding FY20 performance and stated that Net Transaction Loss for FY20 is expected to be ~0.38% relative to NTL of ~0.55% of underlying sales in July 2020. This improvement is primarily due to higher than anticipated collections of instalment payments. Lower NTL is likely to result in a higher Net Transaction Margin of ~2.25% and EBITDA of ~$44 million.

FY20 Update (Source: Company Reports)

Key Risks: APT might face challenges of low-value transactions. It must constantly keep updating the platform as customers immediately suspend themselves from making further purchases if a single payment is late. Implementing tighter rules will place some constraint on maximizing underlying sales growth in the short term.

Stock Recommendation: The company has exceeded its customer targets and witnessed healthy performance across the business. It also achieved key active customer milestones in both the US and the UK. As per ASX, the stock of APT gave a return of 90.68% in the past three months and a return of 31.61% in the past one month. The stock is trading very close to its 52-weeks’ high of $93.500. APT will release its FY20 results on 27 August 2020. On a TTM basis, the stock of APT is trading at an EV/Sales multiple of 46.3x, higher than the industry average (Professional & Commercial Services) of 39.8x, and thus seems overvalued. On the technical analysis front, the stock of APT has a support level of ~$62.69 and a resistance level of $93.597. Considering the current trading levels, attractive returns in the past three months, expansion in the global markets, and key risks, we recommend investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $90.72, down by 1.903% on 26 August 2020.

Zip Co Limited

Zip Announces Partnership with eBay: Zip Co Limited (ASX: Z1P) offers a point-of-sale credit and payment solutions to customers and provides a variety of integrated Retail Finance solutions to merchants across numerous industries, both online and in-store. As on 26 August 2020, the market capitalization of the company stood at ~$2.96 billion. The company has officially launched its business by partnering with eBay Australia. This partnership will offer the opportunity to access working capital via the eBay marketplace to small and medium-sized businesses in Australia and give merchants the freedom to purchase inventory, cover short-term expenses, and manage cashflows via flexible lines of credit. The company has also agreed to a debt funding facility of $100 million with Victory Park Capital Advisors, LLC to fund the Zip Business receivables.

QuadPay Achieves Record Monthly Transaction Volumes: QuadPay has recently reported a record monthly transaction volume of over US$70 million in July, representing an increase of 30% on the June quarter. It also added 133k customers and surpassed a milestone of 2 million customers.

Quarterly Update: During the quarter ended 30 June 2020, the company reported record revenue of $46.4 million with a quarterly volume of $570.7 million. The company continued to deliver on its ANZ strategy and accelerated its global growth missions.

Quarterly Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks, including the exposure to default and an economic overlay considering the macro-economic and regulatory factors. It is also exposed to modelling risks and financial risks, including market risk (such as interest rate risk), credit risk and liquidity risk.

Stock Recommendation: The business model proved to be resilient in the COVID-19 pandemic, in terms of transaction volume, strong revenue mix and outstanding customer repayment performance. It has beaten its target of $2.2 billion in annualized transaction volume. As per ASX, the stock of Z1P is trading near its 52-week high of $9.950 and gave a return of 111.45% in the past three months. The company will announce its results for FY20 on 27 August 2020. On the technical analysis front, the stock of Z1P has a support level of ~$5.692 and a resistance level of ~$9.931. Considering the current trading levels, decent returns in the past few months, resilient financial performance despite the COVID-19 crisis and its partnership with eBay, we recommend a ‘Hold’ rating on the stock at the current market price of $9.650, up by 27.477% on 26 August 2020, owing to the recent partnership with eBay.

FlexiGroup Limited

Trading Halt: FlexiGroup Limited (ASX: FXL) is a provider of point of sale lease and rental finance for the IT equipment, electrical appliance, and other retail markets. As on 26 August 2020, the market capitalization of the company stood at ~$514.68 million. The securities of the company are placed on a trading halt because of its pending release about the outcome of the institutional component of the accelerated entitlement offer. The securities are likely to remain on halt until the commencement of normal trading on 28 August 2020.

FY20 Financial Update: During FY20, the company reported a growth of double-digit in volumes across its simplified lines of business and saw an increase of 37% in consumers. It reported a significant increase in engagement with 600k app downloads and delivered seamless digital experience with eComm growth of 127% in BNPL. During FY20, the company reported a transaction volume of $2.5 billion, reflecting an increase of 17% on a YoY basis. In the same time span, the company reported cash NPAT amounting to $29.2 million.

FY20 Financial Highlights (Source: Company Reports)

Unified Under Humm: The company has marked a further simplification milestone to unify the proposition of interest free instalment payments for consumers and SMEs. Both FXL brand and its consumer brands will be united under one name, Humm^TM. During FY20, Humm has doubled customers with strong double-digit growth across volumes and retail partners.

Key Risks: The company operates in a highly competitive and rapidly changing sector, and hence, is exposed it to a variety of challenges. These include risks related to shifts in the competitive environment, general economic conditions, strategic risks, risks related to technology and investment, macroeconomic risks, etc.

Stock Performance: The stock of FXL gave a return of 17.04% in the past three months but a negative return of 1.51% in the past one month. The stock last traded at $1.305.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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