Afterpay Limited

APT Details

Recent Business Updates: Afterpay Limited (ASX: APT) provides technology-enabled payment solutions for businesses and consumers via its Afterpay and Pay Now services.

• 26 December 2021: APT announced the conversion of Matrix Convertible Notes against 6.5 million APT shares. Additionally, APT and ThinkSmart Limited have agreed upon the acquisition of 6 million fully paid B ordinary shares of Clearpay by APT.
• 17 December 2021: The Supreme Court of New South Wales approved the acquisition proposal by Lanai (AU) 2 Pty Ltd, an indirect subsidiary of Block, Inc. (NYSE: SQ), for APT by way of a scheme of arrangements. The scheme is contingent on satisfying the Bank of Spain condition by 14 April 2022.

FY21 Financial Performance

• Top-Line Bounces Back: Underlying sales were registered at $21.1 billion, up by 90% YoY, at a current run rate of above $24 billion/annum as per Q4FY21 trading. Underlying sales in North America and Clearpay edged up by 177% and 242%, respectively. North America has become APT’s most significant revenue-generating region.
• Active Customers Growing Constantly: The active customers’ count scaled to 16.2 million, up by 63% YoY, with 25,000 customers joining the platform per day globally. 30% of active customers generate purchases from the Afterpay platform.
• Bottom-Line Update: Gross loss stood at 0.9% of underlying sales, while income margin stood at 3.9% due to increased integrated active APT merchants. Net transaction losses clocked 0.6% of underlying sales. APT net margin was recorded at $434.1 million, up by 74% YoY.

FY21 Operating Summary, Analysis by Kalkine Group

Key Risks and Challenges

Considering the evolving landscape for the fintech industry, they have become subject to regulatory restrictions from central banks. Considering high sensitivity to household income, the potential containment restrictions shall pose substantial business risks.

Outlook

The acquisition approval by the supreme court of NSW shall deliver substantial relief from legal constraints. APT is leveraging the fintech ecosystem with new income streams, like Affiliate & Ads, and One time uses the virtual card. APT uses its Afterpay iQ platform to give merchants access to world-leading insights.

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 APT gave a negative return of ~32.461% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $79.800 - $160.050. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering increased financial leverage and a trend of negative net margins. For valuation, few peers like NEXTDC Ltd (ASX: NXT), Megaport Ltd (ASX: MP1), Sovereign Cloud Holdings Ltd (ASX: SOV) and others have been considered. Given the approval by the supreme court, APT’s agreement with ThinkSmart Limited, substantial top-line increase, rising merchant base, stock trading close to 52-weeks low, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $79.990, as of 05 January 2022, 02:58 PM (GMT+10), Sydney, Eastern Australia.

APT Daily Technical Chart, Data Source: REFINITIV

Sezzle Inc.

SZL Details

Recent Business Update: Sezzle Inc. (ASX: SZL) is a growing fintech company, which operates a payment platform. As of 02 December 2021, reported underlying merchant sales (UMS) at an annualised run rate of US$2.5 billion, significantly up by 83% PcP, for November. The key driver for the UMS growth is the holiday season which brought 4-day Black Friday and Cyber Monday periods in US and Canada.

Q3FY21 Financial Performance

• Sales and Merchant Activity: UMS for the period stood at US$460.7 million, up by 101.9% YoY or 12.0% QoQ. Active merchants increased to 44,400, up by 112.5% YoY or 10.2% QoQ. Key developments encompassed was supported by BNPL partnership with BigCommerce and launch of Sezzle Capital in partnership with Wayflyer.
• Consumer Activity: Active consumers clocked 3.2 million, up by 77.9% YoY or 10.7% QoQ. The top 10% of Sezzle users transacted around 49x over the trailing 12-month period. Repeat usage improvements continued and stood at 92.3%. In-store represented over 5.0% of UMS, suggesting long-term omnichannel opportunity.
• Financial Position: As of 30 September 2021, SZL clocked a cash balance of US$46.9 million, down from US$60.027 million reported on 30 June 2021. The liquidity position is substantially supported by the US$87.8 million availability of a line of credit.

Active Merchants Trend, Analysis by Kalkine Group

Key Risks and Challenges

In line with BNPL operation, SZL is substantially exposed to high credit risks, which must be monitored, provisioned, and mitigated. SZL is expected to maintain a decent liquidity position and credit availability by considering lending activities in place.

Outlook

SZL has entered a strategic partnership with Alliance Data Systems (NYSE: ADS), which shall offer its instalment loans via SZL’s merchant platform. Partnering with BigCommerce (NASDAQ: BIGC) will give SZL exposure to 60k+ merchants across 150+ countries.

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 SZL gave a negative return of ~53.774% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $2.780 - $3.050. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at some discount to its peers’ average, considering the potential threat of COVID-19 restrictions, low-profit generation efficiency, and high credit risk potential. For valuation, a few peers like Data#3 Ltd (ASX: DTL), Appen Ltd (ASX: APX), Over The Wire Holdings Ltd (ASX: OTW) and others have been considered. Given rising customer base, improved merchant network, strategic partnerships to increase efficiency and add revenue streams, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $2.910, down by ~4.591%, as of 05 January 2022.

SZL Daily Technical Chart, Data Source: REFINITIV

Laybuy Group Holdings Limited

LBY Details

H1FY22 Financial Performance: Laybuy Group Holdings Limited (ASX: LBY) is a fintech company that provides BNPL services to customers and merchants through its platforms.

• Improved Gross Merchandise Value (GMV): GMV clocked NZ$782 million in annualized GMV, up by 60% YoY. UK GMV almost doubled, up by 95% YoY, and clocked NZ$415 million. LBY remains on track to clock NZ$1 billion GMV.
• Operating Metrics: Record income was registered at NZ$21.2 million, or annualised income of NZ$42. Million, up by 60% YoY. Net transaction margin (NTM) stood at 1.5%, a slippage from 1.7% in the corresponding prior period. Normalized EBITDA slipped substantially from a loss of NZ$16.3 million relatives to a loss of NZ$8.1 million.
• Customers and Merchants Update: Active customers count clocked 889k, up by 57% YoY. UK active customers surged by 90% YoY. Active merchants count clocked 11,700, up by 86% YoY. UK active merchant count advanced by 332% YoY.
• Bottom Line and Financial Position: LBY arranged a new debt facility of EUR30 million with US specialist lenders Partners of Growth (PFG) in complementing UK loan book growth. Cash and cash equivalents stood at NZ$23.3 million as of 30 September 2021, down by NZ$13.3 million from the previous quarter.

Half-Year Operating Summary, Analysis by Kalkine Group

Key Risks and Challenges

LBY is exposed to a material business risk, which arises from cyber security attacks or failure in maintaining cyber security. LBY’s operational and financial health could be affected by customers’ inability to satisfy their dues.

Outlook

LBY remains on track to clock NZ$1 billion in gross merchandise value (GMV). Revenue guidance for FY22 updated to 60-70% growth over FY21, with the UK expected to clock an increase of 75-85% YoY. The Laybuy App Exclusives has delivered substantial uplift in UK GMV, resulting in a lower-than-expected average commission.

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

A director of the company, Craig Styris, has acquired 60,000 shares by Custodian Services Limited as nominee from Styris Investment Limited for a consideration of A$12,000. The stock of LBY gave a negative return of ~81.783% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.150 - $1.500. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering rising customer & merchant portfolio and top-line hike. For valuation, a few peers like Data#3 Ltd (ASX: DTL), Livetiles Ltd (ASX: LVT), Bill Identity Ltd (ASX: BID) and others have been considered. Given the favourable financial position, improved scalability in the UK, the launch of Laybuy App Exclusives, current trading levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.230, down by ~2.128%, as of 05 January 2022.

LBY 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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