Afterpay Touch Group Ltd (ASX: APT)

APT Details
 

Payment services’ provider, Afterpay Touch Group Ltd., which is a merger of Afterpay Holdings Ltd and Touchcorp, witnessed a stock price surge of 10.2% on October 18, 2017 as the group provided a business update for its Q1 FY18 (three-month period ended 30 September 2017) wherein Net Transaction Margin was found to be broadly in line with FY17 performance on a year to date basis, while some seasonal variances over future quarters have been indicated. However, underlying quarterly sales of $367 million have been up from $271 million in Q4 FY17 based on Afterpay system expansion despite the generally / seasonally weak retail industry performance during the period. It is worth noting that underlying annualised sales are now in excess of $1.5 billion based on recent monthly performance.
 

Quarterly Sales Trend (Source: Company Reports)
 
Growth in customer base: The group has been able to grow its new customers on an average by more than 3,000 per day. There are now over 1.1 million customers who have been reported to use the service regularly against the 841k figure reported at 30 June 2017. Despite the rapid growth in new customers, over 80% of transactions per month occur from repeat customers.
 

Enhanced partnerships and offshore growth: APT has also contracted additional major brands such as Target, Luxottica and Petbarn, and is set to partner with more brands in the current financial year. Over 8,600 merchants have been reported to be on-board with an indication of high sales mix. In New Zealand, the group has been able to build momentum with integration of Trade Me and partnerships with Overland, Kathmandu, Smith & Caugheys and Fishpond. Further, the group is about to finalise an initial $20m stand-alone New Zealand receivables funding facility with a major New Zealand domestic bank.

Focus on customer satisfaction, partnerships in retail industry, recent entry into the travel sector via Jetstar, progress on launch of an unlimited online shopping delivery subscription service, “Shipster”, coupled with APT’s in-store footprint expansion (which is said to at least triple in size from the end of Q4 FY17 before Christmas trading period), are all expected to boost the ongoing momentum. The group is expected to reveal more insights during its Annual General Meeting (AGM) in November 2017.

In last three months, the group’s stock has rallied about 52% (as at October 17, 2017), and is on a high run-up. The stock has also been recently admitted to the ASX 300 index. Given the trading scenario, we put a “Hold” on the stock at the current price of $ 5.18
 

APT Daily Chart (Source: Thomson Reuters)

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