IOUpay Limited

IOU Details

Tie-up with EasyStore to Provide Revenue Visibility: IOUpay Limited (ASX: IOU) provides fintech and digital commerce software and services in South East Asia. The business division consists of Mobile Banking, Digital Payments. As per company reports on 9 February 2021, IOU has entered into a partnership with EasyStore, Malaysia who further provides its services to more than 7,000 merchants. The partnership will facilitate EasyStore’s merchants and end-user customers to utilise IOUpay’s BNPL payment services. EasyStore merchants processed over 20mn transactions with a TTV of ~$435mn. This tie-up will provide revenue growth for IOU, going forward.

December 2020 Quarter Activity: As per the company report, IOU has secured a Malaysian Money Lending License for the provision of BNPL services. IOU has also a signed merchant services agreement with two payment gateway providers and one of Malaysia’s leading bank. During the quarter, the company has successfully raised $10.51mn via placement of its equity to sophisticated investors and existing shareholders. These funds were approved by shareholders as at 30 September 2020 in the EGM and would be mainly utilised for IOU’s business expansion. Customer receipts increased 85% QoQ to $2,165mn with a negative operating cash flow amounting to $0.834mn. IOU had $8.54mn in cash and call deposits at the end of December quarter after investing $2.96mn to procure licenses.   

Cash Flow Details (Source: Company Reports)

Outlook: With IOU’s large presence in South East Asia, the company is expecting to gain from the increasing trend of online purchases and cashless transactions. The company is well-positioned to meet the growing demand for digital commerce in South East Asia and looks forward to expanding its presence in other regions in Asia.

Trading Halt Update: On 15^th February 2021, the company’s securities were placed in a trading halt, pending the release of its satisfactory response to ASX’s price query. In the later of part of the day, the company responded to this ASX query with respect to the change of its securities prices from a low of $0.22 at the close of on 9 February 2021 to an intra-day high price of $0.85 on 15 February 2021. Following the company’s response, the stock resumed trading during the day.

Stock Recommendation: The stock of IOU closed at $0.700 with a market capitalisation of ~$198.21 million as on 15 February 2021. The stock made a 52-week low and high of $0.004 and $0.85, respectively, and is currently trading close to its 52-week high level. In last one month, IOU has increased by ~387.5%. Further, the stock increased ~345.7% in the last 3 months on ASX. On the technical analysis front, the stock has a support level of ~$0.516 and a resistance of ~$0.85. Relative Strength Index or RSI (14-period) has been applied on the weekly chart of IOU and default values were used for the purposes. After careful observation, it was noticed that Relative Strength Index (RSI-14) is hovering at around 87 level on weekly chart, indicating that the stock is trading in an extreme overbought region. On the valuation front, the stock is trading at an EV/Sales multiple of 20x as compared to the industry median of 9.1x on TTM (Trailing Twelve Months) basis. Considering the RSI levels, valuation on TTM basis, spike in the stock price over last six-month, and current trading levels, we are of the view that most of the positive factors of the company have been discounted at current juncture. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the current market price of $0.700, up by 59.090% on 15 February 2021, owing to partnership with EasyStore.

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

Openpay Group Ltd

OPY Details

Increase in Active Customers: Openpay Group Ltd (ASX: OPY) is technology-based company that provides payments platform for merchants and consumers. The company’s software and technology platform enable customers to select from a range of no interest payment plans when purchasing goods or services. As per the company report, the active customers in December Quarter 2020 have gone up by 123% relative to pcp and reached at 461k. Similarly, active plans have registered the largest quarterly growth of 213% relative to pcp to reach 1.4 million. OPY has registered a net transaction margin of 1.6%. Gross revenue margin stood at 1.1% for the quarter, indicating peak seasonal retail TTV that has slightly lower margins. A marked reduction in funding costs has been witnessed in Q2 FY21 performance driven by the implementation of the funding facility, at more comfortable rates. 

Net Transaction Margins (Source: Company Reports)

Outlook: OPY is launching its BNPL products in US and alternatively in discussion with merchants to offer their services. The company is prepared to seize opportunities by making its presence in the US and UK, going forward. OPY is all set for its next phase of growth through rolling out of its Automotive and Healthcare specialist verticals in UK. 

Valuation Methodology: EV/Sales based Relative Valuation (Illustrative)

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

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

Stock Recommendation: In the last one month, OPY has increased by ~13.9% and has gone down by ~1.1% during the last three months on ASX. The stock is currently trading slightly above the average of its 52-week price range of A$0.320-$4.980. On the technical analysis front, the stock has a support level of ~$2.323 and resistance of ~$2.909. Current ratio of the company for FY20 stood at 12.71x, higher than the FY19 figure of 3.81x. We have valued the stock using an EV/Sales based multiple relative valuation method and have arrived at a target price of high-single digit upside (in % terms). For the purpose we have taken peers Zip Co Ltd (ASX:ZIP), Moneyme Ltd (ASX: MME), Money3 Corp Ltd (ASX: MNY). Considering a robust December quarter results, increasing presence in US and UK, increase in active customer base, current trading levels and valuation, we recommend a “Hold” rating on the stock at the current market price of $2.66, up by 1.915% as on 15 February 2021.

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

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