Openpay Group Ltd

OPY Details

Q4FY21 Key Updates: Openpay Group Ltd (ASX: OPY) is a technology-based company that provides payment platform for merchants and consumers.

• Growth in TTV: The company maintained a robust volume growth dynamic and registered a rise of 46% YoY in the TTV (total transaction volume) to $92 million in 4QFY21.
• Rise in Active Plans and Active Customers: During the quarter, OPY’s Active Plans and Active Customers increased a whopping 141% and 69%, respectively, year over year. The company witnessed 84% of new plans from Repeat Customers in 4QFY21 and around 53% of Active Customers with multiple plans.
• Increase in Active Merchants: The company recorded an increase of 77% in Active Merchants in 4QFY21.
• Signed Partnerships: In order to drive future growth across all key verticals, OPY inked numerous partnership deals with global and local e-commerce providers, such as Adobe, Quest Payment Systems, One Step Checkout, etc.
• Capital Raise: OPY raised $37.5 million from an institutional placement and availed a debt facility of $25 million. It also raised $8.7 million via a share purchase plan, thus, providing a strong cash position into FY22.
• Acquisition of Payment Assist: In June 2021, OPY inked a deal to acquire 100% of Payment Assist. The deal is expected to close in Q2FY22. The buyout of Payment Assist will further accelerate UK growth and will strengthen OPY’s foothold as a global leader in the BNPL Automotive vertical.

Active Plans Highlights (Analysis by Kalkine Group)

Key Risks: The company is exposed to credit risk, compliance risk, efficiency risk, and cybersecurity risk. OPY also faces the risk of investing in technological upgrades to remain secure and viable.

Outlook:

• OPY USA remains on track and is expected to go live in early October 2021, fastened by combining large wholesale merchant aggregators and key strategic partnerships.
• For Q2FY22, the company expects further growth in TTV, post the completion of Payment Assist acquisition.
• Openpay is all set for its next phase of growth by rolling out its Automotive and Healthcare specialist verticals.
• The company expects to witness initial substantial volume growth in the US, thus creating a significant fundamental leap in growth and scale.

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 ~54.49% in the past six months and a negative return of ~43.99% in the past three months. The stock has recently touched its 52-week’s low level of $1.110. We have valued the stock using the EV/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 median, considering technological risks, competition in the industry and lower customer spending due to COVID-19 led uncertainties. For this purpose, we have taken peers like Harmoney Corp Limited (ASX: HMY), Eclipx Group Limited (ASX: ECX), Prospa Group Limited (ASX: PGL), to name a few. Considering the current trading levels, increase in TTV, rise in active customers and merchants, valuation, expected growth in the UK and the US business, acquisition synergies, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.110, as on 29 July 2021 10:26 AM (GMT+10), Sydney, Eastern Australia.

OPY Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the charts indicates RSI (14-period) 

ZIP Co Limited

Z1P Details

Q4FY21 Results Updates: ZIP Co Limited (ASX: Z1P) offers point-of-sale credit and payments to customers in Australia.

• Increase in Revenues: The company reported group revenues of $129.9 million during the period, reflecting an increase of ~104% y-o-y, owing to continued BNPL expansion strategy across both the developed and emerging markets.
• Rise in Transaction Volume: The quarterly transaction volume stood at $1.8 billion, depicting a rise of 116% year over year. The transaction numbers grew by ~230% y-o-y to 14.2 million in Q4.
• Robust Customers & Merchant Growth: Customer numbers in 4QFY21 rose by 87% on pcp and came in at 7.3 million. There was also an increase in the merchants on the platform to 51.3k, signifying a rise of 84% year over year.
• Acquisition Synergies: Implementing its global strategy, Z1P agreed to buy the outstanding shares in both Twisto Payments (Europe) and Spotii Holdings Ltd (Middle East).
• Debt Facility: During the quarter, the company augmented Goldman Sachs debt facility, thus, offering a decent capacity to assist more than US$5 billion in annual transaction volume.
• Geographical Expansion: The company experienced robust growth in app downloads worldwide. Notably, Zip US (Quadpay) and Zip ANZ app downloaded were more than 1.5 million and 241k times, respectively, in 4QFY21.
• Issue of Seniors Notes: The company issued A$400m zero coupon senior unsecured convertible notes, with maturity on 23 April 2028. The funds were raised to hasten the company’s global expansion.

Transaction Volume Highlights (Analysis by Kalkine Group)

Partnership Deal with Propell:

• On 1^st July 2021, Z1P and Propell Holdings Limited (ASX: PHL) entered a partnership deal to launch Z1P’s Buy Now Pay Later (BNPL) product on the Propell Platform.
• Per the deal, Propell will offer a fully integrated payments solution with Z1P to its platform customers, thus, aiding clients to pay with Z1P’s interest-free BNPL payment solutions.

Key Risks: The company’s mode of operation dependents on technology, and any disruptions to it might impact the company’s business.  The company may see an impact on its profit margins with a severe movement in interest rates.

Outlook:

• The company has witnessed continued impetus in Quadpay, with decent growth being delivered through its differentiated approach.
• The robust key numbers in Q4FY21 demonstrate increased traction in business and the adoption of Z1P's products by consumers.
• The company expects to complete the Spotii acquisition in Q1FY22 and the Twisto acquisition in Q2FY22.

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

Data Source: Refinitiv, Thomson Reuters, 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: As per ASX, the stock of Z1P has 52-weeks’ high and low levels of $14.53-$4.96, respectively. The stock of Z1P gave a positive return of ~15.55% in the past nine months and a negative return of ~16.58% in the past three months. On a technical analysis front, the stock of Z1P has a support level of ~$6.3 and a resistance level of ~$10.6. Notably, the company has reported a loss of $453.77 million in 1HFY21, which expanded from $30.35 million reported in the year-ago period. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer median EV/Sales (NTM Trading multiple), considering the increase in group revenues, higher transaction volumes, acquisition synergies, and robust adoption of Z1P's products by consumers. For the purpose, have taken peers such as Humm Group Limited (ASX: HUM), WISR Limited (ASX: WZR), Plenti Group Limited (ASX: PLT). Considering the expected upside in valuation, current trading levels, robust performance in Q4FY21, partnership synergies, and increased acceptance of its payment solutions, we recommend a ‘Hold’ rating on the stock at the current market price of $6.94, up by ~5.792% as on July 29, 2021.

Z1P Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the charts indicates RSI (14-period)

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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