Afterpay Touch: Looking to pack their bags
About the author:
- Author name:
- By Richard Coles
- Job title:
- Senior Analyst
- Date posted:
- 20 April 2021, 11:00 AM
- Sectors Covered:
- Insurance and Diversified Financials
- Afterpay Touch (ASX:APT) released its 3Q21 business update to the market.
- Group sales of A$5.2bn were up ~100% on pcp (down 9% sequentially), while group customers and merchants were both up ~75% on pcp (+11%-15% on 2Q21 respectively).
- Management noted that group margins remain firm and loss rates remain below historical levels.
- APT will begin to explore the possibility of a US listing (with the North America division now the largest contributor to the group).
- We lower our FY21F/FY22F EPS forecasts by 7%-8% on slightly lower sales growth assumptions. Our price target falls (login to view). APT is a quality business, in our view, but we retain our Hold recommendation on valuation grounds.
Afterpay (APT) has released its 3Q21 update to the market. Group sales of A$5.2bn were up 100% on pcp (+123% on a constant currency basis), but down 9% on the seasonally stronger 2Q21 (A$5.7bn).
Group merchants (~86k) and customers (14.6m) were both up ~75% on pcp and 11%-15% sequentially on 2Q21. Overall business momentum remains relatively robust with revenue margins and loss rates remaining stable.
- North America (NA) sales were up 167% on pcp (+211% on a constant currency basis) to A$2.6bn and flat on 2Q21. NA merchant growth was strong up 30% sequentially to >23k and broadly in line with the 2Q21 growth rate (+29%).
- NA in-store momentum appears to be accelerating with March sales annualised implying a run rate over ~A$225m (vs A$180m in 1H21).
- NA is now the largest contributor to group sales (based on 3Q21) highlighting the prodigious growth opportunity in that market.
- Revenue margins remained firm in 3Q21 and in line with 1H21, whilst gross loss rates remained below historical levels.
- APT recently launched a partnership with global payments platform Adyen, meaning merchants across all regions (NA, UK and ANZ) can now offer Afterpay to their customers.
- Customer transaction frequency continues to increase across all regions, with the top 10% of customers globally (by value) now transacting 33x a year.
Things to keep an eye on – including potential US listing
- Sales momentum slowed on the seasonally stronger 2Q21, with sales flat in the US and UK and down 19% in ANZ.
- APT has launched in Spain, France and Italy during 3Q21, with Clearpay on track to launch in Germany in 1H22.
- APT is exploring a US listing, given the NA division is the largest contributor to the group.
- APT Money is expected to launch in 1H22 with testing underway on deposit and savings accounts.
Changes to forecasts and investment view
We lower our FY21F/FY22F EPS forecasts by 7%-8% on slightly lower sales growth assumptions. Our DCF-based price target falls (login to view). APT is a quality business, in our view, but we retain our Hold recommendation on valuation grounds.
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