Openpay Group Limited

OPY Details

Acquisition Agreement Signed: Openpay Group Limited (ASX: OPY) is a SaaS-based platform (of OpyPro) provider of BNPL payment solutions to customers and merchants in the UK, the US, Australia, New Zealand. The company caters to healthcare, automotive, home improvement, sports memberships, and education sectors. Recently, one of the company’s Directors, Mr. Michael Eidel, acquired 65,000 fully paid ordinary shares of the company at a price of $1.52 per fully paid ordinary share. On 22 June 2021, OPY declared a binding agreement signed to fully acquire Payment Assist Limited (Payment Assist), one of the BNPL solution providers in the UK automotive sector.

The company estimates that together with Payment Assist the merged UK entity would have approximately reported a total transactional value (TTV) of £121.7 million instead of £43.6 million on a CY20 basis. The UK revenue of the combined entity would have been up to £8.4 million from £2.4 million on a CY20 basis. The deal is expected to close in 1HFY22. The proposed acquisition will involve an upfront payment of £11.5 million and up to £17 million component of earn-out consideration.

Financial Highlights of Q3FY21:

• Growth in Revenue & TTV: The company reported growth in revenue to $6.6 million in Q3FY21, up by 24% YoY. OPY registered an uptick of 80% YoY in the TTV to $83 million in the March 2021 quarter.
• Signed Partnerships: During Q3FY21, OPY inked contracts with Officeworks, Ford brands in Australia and forayed in the hospital segment in partnership with St John of God Health Care.
• Capital Raise: OPY raised $37.5 million from an institutional placement and availed a debt facility of $25 million in Q3FY21.

Total Income & Loss After Tax Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces credit risk, compliance risk, efficiency risk, and cybersecurity risk. Given a technology firm offering financial services, OPY faces the risk of investing in technological upgrades to remain secure and viable.

Outlook: With the acquired entity, the Group estimates to generate more than 50% of its TTV and ~50% of revenue in CY21 on a Pro-forma basis. OPY expects the acquisition to fast track its profitability, and the UK will become the most dominant market for the business. The company believes the deal with Payment Assist will foster growth in the selected verticals in the US and the UK and offer more differentiation than competitors in the pay-in-4 space. Besides, the company has decided to launch Opy, the US business in 1HFY22, in partnership with a healthcare aggregator, ezyVet. As a result, OPY expects a massive leap in its growth profile in the market.    

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 stock of OPY gave a negative return of 41.77% in the past six months and a negative return of 53.37% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.370 - $4.870. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering higher net loss in 1HFY21 and associated financial, technological risks and risk of lower customer spending due to COVID-19 environment. For this purpose, we have taken peers like Harmoney Corp Limited (ASX: HMY), Eclipx Group Limited (ASX: ECX), Prospa Group Limited (ASX: PGL). Considering the current trading levels, increase in revenue, active customers, plans, and TTM value in Q3FY21, valuation, expected growth in the UK business and Group’s revenue from the proposed acquisition, and associated risks of slowdown in customer’s spend, income and preferences, we give a ‘Speculative Buy’ rating on the stock at the current market price of AUD 1.370 (as on 16 July 2021 2:50 PM (GMT+10), Sydney, Eastern Australia).

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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