Sezzle Inc.

SZL Details
 
Healthy Capital Position: Sezzle Inc. (ASX: SZL) provides a technology-driven payment platform that facilitates fast payments between end-customers and retailers through its interest-free installment plans, delivering both budgeting and financing value proposition. As on 2 July 2020, the market capitalization of the company stood at ~$761.41 million. During Q1FY20 ended 31^st March 2020, the company’s (Underlying Merchant Sales) UMS surged 321% on a YoY basis to a record US$119.4 million, and active customers rose by ~326%. In the same time span, repeat usage improved by 190bps on QoQ basis to 85.6% and active merchants jumped by 27%. During the quarter, the company retained a healthy capital position with a funding facility of US$100 million and a cash balance of US$36.6 million. In the same time span, operating cash outflows stood at ~US$1.8 million, as compared to the cash outflows of US$6.4 million in 4Q19.


Growth in Monthly UMS (Source: Company Reports)

Leading Loss Indicators Trending Favorably: The company tracked the indicators and reported better collection rates on YoY and MoM basis. The rescheduled payments are improving, and dispute rates are declining. It has a broad range of monetary and fiscal stimulus to combat the disruption caused by COVID-19 and exhibited growth with high user experience.

What to Expect: The growth momentum from the first quarter continued into April and SZL saw an increased online retail spending. The shift to online shopping has positioned Sezzle as a key partner for merchants. SZL is leveraging its network and has a large market opportunity with the US retail market of over US$5.4 trillion. It is building momentum in all key verticals. 

Key Risks: While conducting its business operations, SZL is exposed to a variety of risks. The company depends on continued relationships with its current significant retail merchant clients with no guarantee that these relationships will continue. The contracts can be terminated for convenience and can impact the company’s operations. Also, the profitability of the company is dependent on its ability to put in place and optimize its systems and processes to make predominantly accurate decisions. The end-customer bad debts can adversely impact the company’s profitability.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company has quickly responded to the global pandemic. However, the company has been experiencing an increase in ticket volumes due to the supply chain impacts. As per ASX, the stock of SZL gave a return of 91.44% in the past one month and has limited potential, going forward. The stock is trading close to its 52-week high of $4.450. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method which suggest a correction of lower double-digit (in percentage terms). For the said purpose, we have considered Zip Co Ltd (ASX: Z1P), FlexiGroup Ltd (ASX: FXL), etc. as peers. Considering the aforesaid facts, current trading levels, and attractive returns in the past one month, we suggest investors to book profit and recommend a ‘Sell’ rating on the stock at the current market price of $4.16, down by 2.118% on 2 July 2020.

 
SZL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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