Zip Co Limited

An update on Z1P recent H1FY19 results:Zip Co Limited (ASX: Z1P) is a small-cap company with the market capitalization of around $470.98 Mn as on 26 February 2019. Recently, the group has announced its H1 FY19 results wherein it reported revenue growth of 114% and amounting to $34.2 Mn in 1HFY19. Itstransaction volume increased by 110% to $495.2 Mn. The result owes to an increase in monthly transacting users (MTU) and total customers by 82% and 20% respectively in H1 FY19. The number of transactions per MTU increased by 29%, and more than 3.3 Mn unique users visited Zip website every month.

The company works on the model BNPL- “Buy Now and Pay Later”, hence its loan book (receivables) increased by 54% to $489 Mn. This is due to an increase in customers on the platform to 1 Mn with around 12,500 merchants on board. It is supported by the fact that total downloads across IOS and Android are now 536K, and it ranks among the top 10 in App and google play store with a customer rating of 4.9.


P&L Statement (Source: Company Reports)

As per the company reports, major Australian retailers are live and many are in-line to join the platform such as Bunnings Warehouse, Target, Officeworks and Super Retail Group, with Chemist Warehouse in 2H FY19. Further, the company has a very healthy pipeline and looks forward to announcing major partnerships in the coming month. It also expects to implement any potential regulatory changes due to its sound business model. Recently, Senate committee supported Zip’s policy recommendations over 3 key pillars of responsibility, transparency, and customer support.

Stock Recommendation: Z1P’s share price has generated a positive YTD return of 35.91%. Its financials look fine as the top line and gross margin has shown robust growth. Due to higher provisioning for doubtful loans, the company reported negative Net profits and there is lingering concern over the asset quality which is evident from a rise in the provisioning by a 113% on a YoY basis. However, on the technical front, the momentum strength indicator, Relative Strength Index (RSI) has been reeling in the oversold zone from quite some time now.Hence, we recommend a “Sell” rating on the stock at the current market price of $1.575 and presume that investors would get an opportunity to enter the stock at a lower price point after few trading sessions.
 

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