Afterpay Touch: Hunting the greenback

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
25 February 2021, 3:30 PM
Sectors Covered:
Insurance, Diversified Financials

  • Afterpay Touch's (ASX:APT) 1H21 NPAT of -A$79m was comfortably below consensus (+A$12m), although the miss appeared mainly due to non-cash items/one-off items. We had the result ahead of consensus at EBITDA (ex significant items A$48m vs A$37m).
  • We think it was another solid result by APT, with strong growth in key metrics and again a relatively stable overall margin performance.
  • APT has struck a deal to increase its ownership of APT US, and as part of this will issue A$1.25bn in convertible notes.
  • We now forecast an APT FY21 NPAT loss of -A$85m (previously +A$30m) on higher one-off and non-cash items than expected. We also lower FY22F EPS by ~20% on more conservative leverage assumptions near term. Our PT rises (login to view) on the benefits of greater US business ownership longer-term. APT is a great company but trading on ~35x FY21 revenue we see it as fair value. Hold.

Result summary

APT’s 1H21 NPAT of -A$79m was below consensus (+A$12m), although the miss appeared mainly due to non-cash and one-off items, e.g. a A$65m fair value liability loss linked to a rise in the value of APT’s UK operations (Clearpay).

1H21 revenue of A$417m was actually 1.2% above Factset consensus (A$412m) and EBITDA (ex significant items) of A$48m also appeared above consensus (A$37m).

APT has announced it will launch a new app called ‘APT Money’ which will allow users to manage payments, savings and upcoming APT repayments.

Regulatory approvals have also been received for the Pagantis acquisition (completion in mid-March) which will allow APT to launch in Spain, France and Italy (A$1bn pipeline of merchants already).

Key thoughts – pretty solid result

Generally we saw this as another solid result by APT. As expected growth in key metrics remained very robust, e.g. group sales (A$9.8bn) up 106% on pcp, customers (13.1m) up 80% on pcp, and merchants (74.7k) up 73% on pcp.

Again, we were most impressed by the strong performance in key profitability margins despite rapid growth. Indeed, the revenue margin (3.8%) was unchanged on pcp, and the gross loss margin declined (to 0.7% vs 1% in pcp), albeit offset at the net transaction margin level (2.2% vs 2.1% in pcp) by lower late fees.

Despite investing in the business, total operational expenses also declined on pcp as a % of sales (1.3% vs 1.7%). On competition, APT has not seen its checkout market share impacted by other BNPL options.

Increasing ownership of APT US and A$1.25bn in convertible notes

APT has struck a deal with Matrix Partners (MP) and will also launch a tender offer to participants under the US ESOP that will see APT’s ownership of APT US Inc. rise from 80% to ~93% (future aim of increasing this closer to ~100%).

The cost of MP’s stake (35% of its interest in APT US inc) is A$373m, with APT’s US business valued at 28% of the group’s market cap.

We see the move to increase the ownership share in APT’s key growth region as a prudent decision.

APT will issue A$1.25bn in convertible notes to fund the MP transaction/tender offer and to provide further capital to support growth.

Changes to forecast and investment view

We now forecast an APT FY21 NPAT loss of A$85m (previously +A$30m) on higher oneoff and non-cash items than expected.

We also lower FY22F EPS by ~20% on more conservative leverage assumptions near term. Our PT rises (login to view) on the benefits of greater US business ownership longer-term.

APT is a great company but trading on ~35x FY21 revenue we see it as fair value. Hold.

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