Afterpay Touch Group Limited

Robust Q4FY18 Performance: Afterpay Touch Group Limited’s (ASX: APT) stock climbed up 6.282 per cent on July 20, 2018 with positive sentiments continuing from the latest announcement of the business update for the three-month period ended 30 June 2018 (Q4 FY18) and the financial year ended 30 June 2018 (FY18). According to the update, APT recorded underlying revenue growth of 171 per cent in Q4FY18 that amounted to $736 Mn as compared to prior corresponding period. This was mainly driven by the combination of new customers which grew at an average of over 3,600 per calendar day in Q4 FY18, repeat customer activity, new retailers (consistently onboarding between 600 and 1,000 new businesses per month), increasing share of retailer check-out and adoption of Afterpay’s in-store proposition by existing multi-channel retail partners. Further, the group expects that Group Revenue and Other Income will be around $142 Mn for the full year and EBITDA will be in the range of $33 Mn to $34 Mn for FY18. The Group EBITDA is expected to be between $27 Mn and $28 Mn (subject to audit). However, it is important to note that the Gross Losses and Net Transaction Losses trended down in Q4 FY18 and improved over H2 FY18, despite the increased underlying sales performance and merchant diversification in the same period. Based on this, the group expects stronger Net Transaction Margin in H2 FY18 compared to H1 FY18.


SMB Market Penetration and Rapid Uptake from Online Players (Source: Company Reports)

On the other hand, Afterpay recently launched in the U.S in mid-May 2018 and received encouraging results in which it processed over $11 Mn of underlying sales in the first full month, June 2018 and took approximately 16 months for the Australia Afterpay business to get this amount of cumulative underlying sales. Under this, there are over 400 retailer contracts signed to date and over 200 retailers are currently transacting on the platform. We expect the growth momentum to continue at the back of continuing to progress expansion opportunities in the U.S. and other markets. Meanwhile, the share zoomed up 139.47 per cent in the past three months and was up by 23.22 per cent in the past one week (as at July 19, 2018). Since the stock is currently trading at the higher level, we maintain our “Hold” recommendation on the stock at the current market price of $ 14.380, considering robust fundamentals and business expansion into US market. Given the stellar performance and continued momentum, the stock might get some more boost from its US operations.

 
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