Openpay Group Ltd

OPY Details

First Live Transaction in US: Openpay Group Ltd (ASX: OPY) provides payments technology that offers a Buy Now, Pay Later product. On 27 October 2021, the company went live in the US with OpyPay. OpyPay is transacting in the US healthcare market and would also be extended to other high-value verticals.

• The company added that OpyPay provides consumers with longer terms (up to 24 months), larger limits (up to $20k), and more flexible payment options for meeting ends requirements.
• OPY is targeting Australian B2B market, which is estimated at $233 billion comprised of $143 billion by Self-Funded enterprise merchants, $75 billion by Externally Financed enterprise merchants and $15 billion by No Current B2B Solution.

Q1FY22 Financial Highlights:

• Decent Growth in Active Merchants and Customers: During the quarter, the company recorded a rise of 87% in active merchants to 4.3k, which happens to be highest growth ever on record. This was backed by the company’s continuous action to partner with aggregators and distributors to grow at scale. OPY witnessed a growth of 56% in Active Customers to 579k over pcp.
• Increase in Topline: During the quarter, the company recorded total revenue of $7 million as compared to $6.3 million in Q1FY21, reflecting growth of 10% and strong revenue margin of 6.7%, showcasing an improvement from the previous quarter.
• Record Growth in TTV: The company posted a record growth of 51% in total transaction value (TTV) to $103 million and for the first time, OPY managed to surpass the toll of $100 million in TTV.

Active Customers (Source: Analysis by Kalkine Group)

Key Risks:

• Competition from Peers: The company operates in a very competitive market, which leads to the risk of new providers or existing competitors providing a comparatively superior solution or experience.
• Regulatory Risk: OPY is exposed to a more complex regulatory environment as it deals in the payment’s solution, which is being invigilated by the authorities.

Outlook:

• With respect to active merchants, the company 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, anticipated completion of Payment Assist acquisition, launch in UK healthcare, and US volumes.
• The company has scheduled to conduct the 2021 Annual General Meeting on 15 November 2021.

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: During the quarter, the company successfully re-financed and extended its existing funding facilities in Australia and closed Q1FY22 with a cash balance of $34 million. Moreover, the company possesses overall liquidity of $187 million, which comprised of cash reserves and undrawn funding lines of $153 million. The company is trading below its 52-week low-high average of $1.110 - $3.570, respectively. The stock of OPY has been corrected by ~36.38% in the past six months. The stock has been valued using 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, high debt to equity ratio, and forex headwinds. For the purpose of valuation, peers such as Humm Group Ltd (ASX: HUM), Zip Co Ltd (ASX: Z1P), Laybuy Holdings Ltd (ASX: LBY), and others have been considered. Considering the expected upside in valuation, rising active customer and merchants, growing revenue, record growth in TTV, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.275 as on 03 November 2021, 1:57 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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