Afterpay Touch: Hunting the greenback
About the author:
- 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.
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.
Find out more
Download full research note
You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.
If you would like access or more information, please contact your adviser or nearest Morgans office.
Request a call
Find local branch
Need access to our research?
You are also welcome to start a two-week trial of our online platform, which provides access to detailed market analysis and insights, provided by our award-winning research team.
Create trial account
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.