Openpay Group Ltd

OPY Details

US Market Opportunity and Q2FY22 Highlights: Openpay Group Ltd (ASX: OPY) provides payments technology that offers a Buy Now, Pay Later product. As announced on 12 January 2022, the company made a strategic decision to focus on enhancing and supporting the US business as its core growth engine, which would be backed by strong support from key US partners as well as the emerging scale of the opportunity.

• In the month of December 2021, the company delivered the highest ever monthly Total Transaction Value (TTV) of $34.6 million, which indicates a record Australian operating performance in Q2FY22.
• The company would be focused on the implementation of cost reductions and efficiency initiatives to further ramp up the pathway to profitability in its home market.
• In addition, the company has entered a partnership agreement with Payment Assist in the UK instead of an outright acquisition.
• During Q2FY22, the Australian business has attained the highest ever TTV of $87 million, reflecting a rise of 44% on a YoY basis.
• The company witnessed the strongest ever ANZ TTV volume, which delivered market-leading revenue margin of 7.2% and a net transaction margin of 2.9% as of December year-to-date.

Amendment to Debt Facility: The company has recently upsized its existing $25 million corporate debt facility with OP Fiduciary Pty Ltd, by additional uncommitted funding of up to $5 million. This is subject to customary conditions precedent and lender approval.

Q1FY22 Financial Summary:

• During the quarter, the company recorded a rise of 87% in active merchants to 4.3k, which was the highest growth ever on record.
• OPY recorded total revenue of $7 million as compared to $6.3 million in Q1FY21, reflecting growth of 10% and a strong revenue margin of 6.7%.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Stiff Competition: OPY operates in a very competitive market, which leads to a risk of new providers or existing competitors providing a comparatively superior solution or experience.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook:

• With respect to active merchants, OPY anticipates strong volume growth in the upcoming quarters as their customers has commenced using its product.
• For FY22, the company expects growth in TTV, which would be backed by the continued market- leading growth in Australia.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company is trading around its 52-week low level of $0.630, offering a decent opportunity for accumulation. The stock of OPY has been corrected by ~17.46% in the past one month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 disruptions and inefficiency in generating profits. For the purpose of valuation, peers such as Eclipx Group Ltd (ASX: ECX), Sezzle Inc (ASX: SZL), Laybuy Holdings Ltd (ASX: LBY), and others have been considered. Considering the expected upside in valuation, rising TTV, growing revenue, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.680, down by ~2.858% as on 17 January 2022.

OPY Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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