Sezzle Inc.

SZL Details

Agreement with Target Corporation: Sezzle Inc. (ASX: SZL) facilitates a technology-driven platform for easy and secure payments between consumers and retailers, and offers short-term, interest-free instalment plans. The market capitalisation of the company as on 03 June 2021, stood at ~$1.48 billion. The company has recently announced that it has entered into a three-year agreement with US based retailer, Target Corporation. As per the agreement, SZL's product will be used in-store and across Target's digital platforms and will provide guests access to interest-free payment plans for any purchases made at the retailer.

Launch of Long-Term Financing: SZL has launched its long-term financing options with Ally Lending, which expands Sezzle’s core product, offering longer loan terms for higher ticket transactions. Ally Lending provides monthly fixed-rate instalment-loan products that can extend up to 60 months and US$40k per instalment.

Q1FY21 Performance Update: The underlying merchant sales increased by ~214.1% to US$375.1 million during the period from the prior corresponding period. Around 400,000 active consumers were added during the quarter, reflecting the total to over 2.6 million active customers during the period end. It has also added over 7,300 active merchants in Q1, and the total merchants on the platform stood at over 34,000.

Q1FY21 Performance (Source: Company Reports)

Key Risks: SZL is an early-stage financial technology company with a limited history of operations, and there might be a risk that the company might not continue at the same level of growth.

Outlook: The company has announced a new partnership with Lamps Plus, and the speciality lighting retailer will offer Sezzle as a flexible payment option to its online customers at LampsPlus.com. The partnership augurs well for both parties, with increased traction in sales expected in the future.

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 reported a dip in the current ratio to 2.53x in FY20, compared to 4.03x in FY19. As per ASX, the stock of SZL is trading above its 52-weeks’ levels of $2.60-$11.99. The stock of SZL gave a positive return of ~229.74% in the past one year and a positive return of ~50.57% in the past six months. On a technical analysis front, the stock of SZL has a support level of ~$8.209 and a resistance level of ~$10.13. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with correction of high single-digit (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the robust increase in underlying merchant sales, increase in active merchants and customers. For this purpose, we have taken peers such as Afterpay Ltd (ASX: APT), Tyro Payments Ltd (ASX: TYR), WISR Ltd (ASX: WZR), to name a few. Considering the current high trading levels, recent rally in the stock price, dip in the current ratio and the key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $9.28, up by 23.73% (as on 03 June 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia), owing to the update regarding the three-year agreement with US based retailer, Target Corporation.

Note: The purple color line in the chart shows RSI (14-period) and the green color histograms represent volumes. The red and sky blue color lines indicates 21-period SMA and 50-period SMA, respectively.

SZL Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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