Openpay Group Limited

OPY Details

December 2021 Quarterly (Q2FY22) Highlights: Openpay Group Limited (ASX: OPY) offers BNPL (buy now pay later) payment services to healthcare, memberships, automotive, etc. sectors. OPY serves merchants and customers in the UK, the US, Australia, and New Zealand. In Q2FY22, OPY posted a robust operating performance, delivering a record TTV, and focusing on operating efficiencies in a ramp up to achieve profitability in ANZ in the next 12-18 months.

Growth in Key Metrics:

• The company posted revenue of ~$8 million, depicting a rise of 30% on pcp in Q2FY22 (December 2021). The global NTM increased from ~0.8% in Q2FY21 to ~1.2% in Q2FY22 while the ANZ NTM was 2.4%.
• The active customer base increased to 614,000, up by 33% YoY in Q2FY22. OPY reported record ~56% of its customers had multiple active plans and ~86% of active plans are availed by repeat customers.
• US Business Update: In October 2021, OPY availed the ~US$271 million secured debt facility from Atalaya Capital Management and Goldman Sachs to solidify expansion in the US payments market. In December 2021, OPY also inked a partnership with American Express to provide its differentiated BNPS product to US merchants and card members.
• OpyPro B2B SaaS Platform Update: Together HP, Woolworths, and Kogan have over ~8,500 business accounts added on the platform. The transaction volume has grown over ~149% QoQ in Q2FY22 and the platform pipeline continues to increase and mature. 

Growth in TTV & Reduction in Opex from Q1FY21-Q2FY22; (Analysis by Kalkine Group)

Key Risks: OPY faces the risk of technological changes, negative forex rate movements, acquisition risk/partnership synergies as it expands. It faces the risk of profitable operations as it continues to expand across geographies and verticals.

Outlook:

• The company looks forward to more business progress during Q3FY22, with the influx of new merchants and the advance of pilots underway.
• OPY expects to declare more B2B partnerships for the OpyPro platform in the next quarters.In the US, OPY plans to build a pipeline for the OpyPro platform and expects the alliance with Kyriba to expedite the sales cycle for acquiring new OpyPro B2B clients.
• OPY is currently in-consultation with employees and merchants to evaluate the implications of its decision to enter an alliance with Payment Assist, UK instead of acquiring it. The company maintains its expectation that these changes in the UK business will lead to capital release and significant cost savings.

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 ~63.52% in the past three months and a negative return of ~61.57% in the past six months. The stock is currently trading at its 52-weeks’ low level of $0.465. 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 a slight discount than its peers’ average EV/Sales multiple, considering the negative operating cashflows, high debt-to-equity ratio, and continued negative bottom line. For the purpose of valuation, a few peers like Prospa Group Limited (ASX: PGL), EML Payments Limited (ASX: EML), Beforepay Group Ltd (ASX: B4P) have been considered. Considering the low trading levels, record growth in TTV in Q2FY22, robust pipeline, and demand of OpyPro platform, expected partnerships in the coming months, plans to deliver profitability for ANZ, and indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.465, down by ~8.824% as of 3 February 2022.

OPY 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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