Openpay Group Limited

OPY Details

Opy US Market Launch & Expansion: Openpay Limited (ASX: OPY) provides ‘Buy now pay Later’ (BNPL) services and solutions to merchants and customers in the UK, New Zealand, and Australia. In the US, the company operates under the brand name Opy. On 7 October 2021, OPY declared its differentiated and custom-made proposition for US consumers with the most flexible instalment plans.

• OPY has collaborated with Goldman Sachs & Atalaya Capital Partners to secure US$271.4 million of revolving debt warehouse facility for rapid US expansion. The company issued 1,022,271 million warrants to Goldman Sachs concerning the funding facility, with each warrant convertible into an ordinary share at $1.304.
• OPY has also partnered with CRB (Cross River Bank) to seek a compliance framework and a lending platform to scale its US market reach. The alliance enables OPY to provide consumer loans up to US$20K for up to two years financed and underwritten by CRB.

FY21 Highlights:

• Growth in Total Transaction Value (TTV): OPY posted TTV growth of ~77% YoY to $339 million during FY21 due to income growth from BNPS unit and OpyPro (Openpay platform).
• Revenue Increased: The revenue rose by 45% YoY to $26.03 million in FY21 versus $18.00 million in FY20.
• Cash & Debt Position: The company held $52.1 million cash and cash equivalents and $49.80 million in debt as of 30 June 2021.

Total Revenue & Net Loss Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces interest rate changes on its cash and cash equivalents & interest-bearing borrowings, forex rate sensitivity, and liquidity changes to ensure working capital needs and meet investment objectives.   

Outlook:

• The company plans to target Healthcare, Education, Auto Repair, Big-Ticket Retail, and Home Improvement verticals in the US and increase transactions for US consumers and merchants.
• OPY plans to scale up in the UK and focus on key verticals associated with the local aggregators and ecosystem partners.
• OPY plans to sign up with more significant B2B enterprise merchants for its OpyPro SaaS platform across geographies.
• The company plans to innovate the platform by launching a new ecommerce & proprietary Automated Risk Management Model worldwide.

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 positive return of ~10.64% in the past month and a positive return of ~3.55% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.110 - $3.570. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers, considering its increase in net loss, reduced revenue margin, net cash outflows from operating activities in FY21, prevailing COVID-19 risk, volatility of TTV margin growth across sectors. For this purpose of valuation, few peers like Eclipx Group Limited (ASX: ECX), Prospa Group Limited (ASX: PGL), Humm Group Limited (ASX: HUM) have been considered. Considering the current trading levels, increase in TTV, cash receipts, & revenue, expansion in the US, new agreements with Kiohan & Nissan, valuation upside, and key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.405, as of 14 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

OPY Daily Technical Chart, Data Source: REFINITIV

Orcoda Limited

ODA Details

Signed a Major Works Subcontract: Orcoda Limited (ASX: ODA) is a transport logistics and services provider operating segments: Resource Logistics, Transport Logistics, and Healthcare Logistics. On 13 October 2021, the Resource Division of ODA entered major works subcontract with Laing O Rourke via its wholly owned subsidiary Betta Group of Companies Pty Limited. ODA will deliver mechanical services for ~18 months and estimates ~$2.2 million in revenue.

FY21 Highlights:

• Rise in NPAT: ODA posted a rise in operating profit after tax to $456,996 in FY21 versus a $6.73 million net loss in FY20. The NPAT attributable to members rose significantly from $54,907 in 1HFY21 to $456,996 in 2HFY21.
• Growth in Revenue: The total revenue increased by 381% YoY to $8.82 million during the year led by the Resource Division.
• Increase in Net Cashflows: The company reported positive net cashflows of $336,939 during FY21 compared to net cash outflows of $1.79 million in FY20 due to higher cash receipts from customers.

Operating Revenue & Net Income Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company’s operations face market risks such as forex changes, interest rate sensitivity, liquidity, and credit risk. The persistent COVID-19 volatility and stiff competition also pose a threat to the company’s smooth operations. 

Outlook:

• ODA is focusing on delivering operational efficiency to key transport infrastructure projects. The company plans to deploy its proprietary technology products and current technology to scale and identify value accretive acquisitions.
• The company is expanding its Healthcare Division on the back of its present and in pipeline customer contracts.
• The Transport Division evolves with the new Orcoda Logistics Management System (OLMS) and engages with a client for a large potential contract. It expects the recurring revenues to grow as the customer base expands.

Stock Recommendation: The stock of ODA gave a positive return of ~10.71% in the past three months and a positive return of ~72.22% in the past year. The stock is currently trading slightly above its 52-weeks’ average price level band of $0.090 - $0.210. On a TTM basis, the stock of ODA is trading at a price to book value multiple of 1.7x lower than the industry (Freight & Logistics Services) average of 3.1x, thus seems undervalued. Considering the current trading levels, a turnaround in NPAT and net cash flows during the year, contracts in hand with the Healthcare & Transport Divisions, valuation on a TTM basis, expected operational efficiencies and innovation in products, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.155, down by ~3.126%, as on 14 October 2021.

ODA Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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