Sezzle Inc

SZL Details

Sezzle Inc (ASX: SZL) is fast growing fintech company that provides a payment platform that facilitates payments between consumers and retailers. It also offers interest-free instalment plans.

Results Performance (For the Period Ended 30 June 2021)

• Increased UMS: In Q2FY21, the company reported an increase of 119% YoY in underlying merchant sales (UMS) to $411.1 million. In H1FY21, UMS rose to $786.2 million, up by 156%. The growth in UMS was driven by continued acceleration in its active merchant and active consumer base. Active consumer repeat usage rose to 91.6% in June 2021.
• Increased Active Merchants and Consumers: Active Merchants stood at 40,274 as on 30 June 2021 compared to 34,018 as on 31 March 2021. Notably, active consumers rose to 2,883,825 as on 30 June 2021 from 2,604,119 as on 31 March 2021.
• Higher Total Income: The company’s total income increased by 123% YoY to $24.1 million in Q2FY21, while in H1FY21, income grew by 159% YoY to $46.4 million led by growth in UMS.

Consolidated Income Statement (Source: Company Reports) 

Investment of US$30 million by Discover

• The company, on 15 July 2021, declared that it has formed an agreement with DFS Services LLC (Discover), a subsidiary of Discover Financial Services that entails investment of US$30 million to be undertaken by Discover into SZL and for this, SZL issued 4,559,270 shares to Discover Financial Services on 19 July 2021.
• Additionally, both the companies plan to launch a buy now, pay later network solution on the Discover Global platform along with dedicated referral programme by introducing a Discover Credit and debit products to SZL’s consumers.

Key Risks

The company operates in a highly competitive industry. Hence, its technology platform faces stiff competition from various business and new market entrants. Changes in general economic conditions would adversely impact the consumer demand that could in-turn hurt its business as well as financial condition.

Outlook

In order to drive growth momentum, SZL continues to make strategic investments as well as undertaking R&D and sales and marketing activities. The recent partnership with Discover will aid in enhancing its own offerings.

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

Technical Overview

Chart:

Source: REFINITIV

Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock declined by ~41.1% in 6 months. It has made a 52-week low and high of 5.160 and 11.990, respectively.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). As slight premium has been applied to EV/Sales multiple (NTM) (Peer Average) considering traction in UMS as well as active consumers and merchants that reached record highs in Q2FY21.

Considering the aforementioned factors along with its growth investment initiatives, we give a “Speculative Buy” recommendation on the stock at the current market price of $6.61 per share, (Time: 1:09 PM (GMT+10), Sydney, Australia) on 23^rd August 2021.

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.

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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