Stocks’ Details
 

Afterpay Limited

Clearpay Achieves One Million Active Customers Milestone: Afterpay Limited (ASX: APT) provides technology-driven payment solutions for consumers and businesses through its Afterpay and Pay Now services and businesses. The company is currently available in Australia, New Zealand, the United States, and the United Kingdom where it is called Clearpay. On 23 June 2020, Clearpay announced that currently, it has over 1 million active shoppers in the U.K. using the service. This milestone has been reached after the launch in the U.K. just one year ago, establishing Clearpay as one of the fastest-growing e-commerce payment companies in the European market. It is worth noting that during COVID-19 pandemic, Clearpay witnessed a strong customer adoption rate.

Reached 5 Million Active Customers in the U.S. Market: In May 2020, APT announced that it now has over five million active shoppers in the U.S. using the service at Afterpay merchant partners. APT was able to achieve this milestone after launching in the U.S. just two years ago. In the month of April alone, the company had over 15 million app and site visits, and Afterpay’s U.S. Shop Directory contributed nearly 10 million lead referrals to its retail partners.
H1FY20 Results Highlights: In the first half of FY20, the company’s total income increased by 96% to $220.3 million, relative to the previous corresponding period (pcp). Over the period, the company’s underlying sales increased by 109% to $4.8 billion. In the ANZ region, the underlying sales witnessed a growth of 55% to $3.1 billion. For H1FY20, the company reported a statutory loss before tax of $35.8 million and statutory loss after tax of $31.6 million, relative to $21.5 million and $22.2 million respectively in the prior comparable period.


H1FY20 Results (Source: Company Reports)

Key Risks: The company operates in a range of jurisdictions including Australia, New Zealand, the US and the UK, and may become subject to additional legal, regulatory, tax, licensing, compliance requirements and industry standards. Existing competitors, as well as new competitors entering the industry, both in Australia and offshore, pose additional risk to the company.

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

EV/EBITDA Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  Over the last three months, the stock of APT has increased by 238.26% on ASX and is trading close to its 52 weeks high price of $66.760. Hence, it can be said that all positive factors have been discounted at the current trading levels. Further, the stock is trading at EV/Sales multiple of 36.7x, higher than the industry median (industrials) of 24.6x, on the TTM basis. The stock is also trading at a price to book value multiple of 21.8x, higher than the industry median of 5.0x. Having said that, stock seems overvalued at current juncture. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a correction of high single-digit (in % terms). For the purpose, we have taken peers like Altium Ltd (ASX: ALU), WiseTech Global Ltd (ASX: WTC) and Xero Ltd (ASX: XRO).  Considering the aforesaid facts, we advise investors to keep an eye on the stock and suggest an ‘Expensive’ rating on the stock at the current market price of $67.500, down by 0.968% on 3 July 2020. 

Chorus Limited

Extension of Syndicated Bank Facility: Chorus Limited (ASX: CNU) owns and operates a nationwide fixed line access network infrastructure in New Zealand. The company currently has a market capitalization of $3.1 billion as on 3 July 2020. On 17 April 2020, the company announced that it has entered into an extension to its $550 million committed bank facility, providing financial flexibility and funding certainty. The company has extended the $350 million tranches by 11 months to April 2023 and $200 million tranches by 11 months to April 2025. Only $35 million of the facility is currently drawn. The company has recently informed that it will release financial results for the year ended 30 June on Monday 24 August 2020.

COVID-19 Update: In response to COVID-19, the company has suspended all its non-essential field activities to eliminate the risks of spreading COVID-19. Further, the company has reduced its FY20 gross capital expenditure guidance from a prior range of $660 million to $700 million to a new range of $610 million to $650 million. However, the FY20 EBITDA guidance remains unchanged at $640 - $655 million. 

Q3FY20 Update: On 9 April 2020, the company provided an update for March 2020 quarter, wherein it informed its monthly average data usage for March grew to 346GB, up 18% from 293GB in December. Further, the broadband connections increased by around 4,000 in Chorus UFB and rural areas, while total broadband connections reduced by 4k to 1,202,000. Over the quarter, the total fixed line connections declined by 13k to 1,419,000. 

H1FY20 Results Highlights: In the first half of FY20, the company reported net profit after tax of NZ$31 million and EBITDA of NZ$332 million. Operating revenue for the period was NZ$483 million and operating expenses were NZ$151 million. For the period, the company declared an interim dividend of 10 cents per share.


H1FY20 Results (Company Reports)

Key Risks: The company’s foreign currency debt and its future commitment to purchase foreign currency denominated assets, expose CNU to the risk of foreign currency fluctuations. Further, the company has interest rate risk arising from the cross-currency interest rate swap converting the foreign debt into a floating rate NZD obligation.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (illustrative)

EV/EBITDA Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CNU has increased by 18.54% on ASX and is trading close to its 52-week high of A$7.470. The stock is currently trading at a PE multiple of 60.400x. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in % terms). Considering the company’s decent H1FY20 performance, its FY20 guidance, the extension to $550 million committed bank facility, and valuation, we give a “Hold” recommendation on the stock at the current market price of $7.260, up by 4.161% on 3 July 2020. 
 

Fintech Chain Limited

FY20 Results Highlights: Fintech Chain Limited (ASX: FTC) is a fintech provider of integrated payment acquiring infrastructure solutions (collectively named T-Linx^TM System) for banks and merchants across various industries in Greater China. During the financial year 2020, the company reported revenue of RBM 35.6 million, down by 19% on previous year, due to the slower revenue growth from T-linx^TM related products and services as it was impacted due to COVID-19. During FY20, the company also reported an unrealised gain of RBM 4.3 million on change of fair value of embedded derivatives of convertible bonds. Over the year, the company reduced its selling expenses to RBM 2.44 million, from RBM 4.44 million in the prior year. Further, the company reported gain of RBM 1.045 million on extinguishment arising from modification of convertible bonds. The company also reported a gain of RBM 103,204 on modification of convertible bond. As a result, for FY20, the company generated net profit after tax of RBM 3.21 million, up by 11% on the previous year.

During the year, the company executed a new contract with Shenzhen branch of China Construction Bank which is a Tier 1 financial institution in China. Further, it engaged Rural Credit Union in Guangdong Province, Shanxi Province, Gaoyang County in Hebei Province, Xinjiang Shanshan, Xinjiang Weili and Xinjiang Gongliu in Xinjiang Province.


Income Statement for FY20 (Source: Company Reports)

Outlook: Moving forward, the company expects revenue from T-linx^TM to continue growing steadily in FY2021. Further, the company is planning to divert more resources to focus and develop channels of “Consumer Coupon Issuance & Verification and Cashless management of revenue and expenditure”. The company believes that these channels can provide other opportunities during the Coronavirus (COVID-19) pandemic period to compensate for the impact on the revenue under the current difficult business environment. The company will continue to improve and enhance its T-Linx^TM related products and services to increasing revenue and gross profit.

Key Risks: The fact that the company’s revenues were impacted by the COVID-19 pandemic, reveals that the company’s future revenues and income are dependent on the extent and duration of COVID-19 pandemic. The company is exposed to currency risk primarily through cash and bank balances that are denominated in a foreign currency. Further, the company is also exposed to the credit risk of trade and other receivables. 

Stock Recommendation: Over the past six months, the stock of FTC has declined by 21.74% on ASX but has increased by 13.92% in the last three months.  On TTM basis, the stock is trading at EV/Sales multiple of 9.2x, higher than the industry median of 3.8x. Further, the stock is trading at a Price to Earnings multiple of 60.0x, higher than the industry median of 11.0x, on a TTM basis.Considering the aforesaid facts, uncertainty arising due to COVID-19, current trading levels and higher valuation, we have a wait and watch stance on the stock at the market price of $0.090.  


Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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