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Afterpay Valuation, page-547

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Andredamus1

2,154 Posts.

535

17/01/20

13:40

Post #: 42435238
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Originally posted by mal85: ↑

My valuation methodologies are anathema to mainstream methodologies so I haven't posted. My DCF calculations gave me $55 last time I did the exercise for FY20 (but I put 0 weight on this).

The GMV calculation has been a good rule of thumb, but IMO it is dangerous to use it. The reason it has been a good rule of thumb is that if you breakdown the essence of valuation you get a result close to 1x GMV.

See mathematical explanation below:

I tend to use PEG ratios for valuation:
1) it allows me to do ongoing calculations as circumstances change in my head
2) it has been empirically validated numerous times as one of the most accurate pricing models (Gleason, Cristi A., W. Bruce Johnson, and Haidan Li. "Valuation model use and the price target performance of sell‐side equity analysts." Contemporary Accounting Research 30.1 (2013): 80-115.)
3) the fundamental basis for PEG ratios if using a two stage high growth DCF model is mathematically sound- see Damodaran (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/invfables/peratio.htm)

As you can see in a 2 stage model the PE multiple approximates the PEG ratio.

Anyway I have said many times before mathematically assuming:
1) net margin (NM) at maturity is approx 20% (this is likely based on AU EBITDA margins of 30% currently at close to maturity)
2) Gross transaction margin (GTM%) of 5% (including other income/ bad debts collection)

so PE ratio (PER) ~ growth rate (g) based on PEG modelling above

PE= market cap / profit
profit = revenue*net margin
So PE = market cap/ (revenue * NM)
PS (price/sales) = market cap/ revenue --> revenue = market cap/PS
So PE = market cap/((market cap/PS) * NM) = 1/(1/PS)*NM = PS/NM
So PE = PS/ net margin

Theoretically then if g~100 then
100= PS/0.2
PS ~20

PS = market cap/ revenue
revenue= GMV * GTM
revenue = GMV *0.05
PS = market cap/ (GMV*0.05)
20= market cap/ (GMV *0.05)
GMV*0.05= market cap/20
GMV*1/20= market cap/20
GMV= market cap

Anyway the crux of it is that the GMV is only a good approximation whilst g~100 which by circumstance it has been for the last couple of years.

Expand

Hey Mal, many thanks for taking the time to provide such a detailed explanation of your valuation methodology for APT. Whilst the mathematical formulas sitting behind it are a little over my head, the gist seems to accord with my opening post on this thread - that the market cap will move in a generally linear relationship to GMV provided growth rates and margins remain constant. As growth starts to slow (which must inevitably happen), the MC will become less than 1x GMV. Of course, the potential offset to this is the company's ability to monetise its data base which could add a significant source of revenue outside of GMV (but inexorably linked to it).

For the purposes of the poll, are willing willing to throw an SP prediction out there for a bit of fun?

APT Price at posting: $33.19 Sentiment: Buy Disclosure: Held
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0 Great analysis

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