With the Z1P half year a week away, I'd thought I would give my two cents on valuation and future outlook. The two main metrics that stand out and investors have to pay particular attention to is transaction volume (TV) and current active customers (AC).
Z1P forecast for FY20E is $2.2b TV, and 2.5m AC. Zip's 2Q trading update showed active customers of 1,754k, ahead of UBS (1,688k) prediction. Revenue yield did initially fall against the previous quarter from 16.8% to 16.2% respectively. This was due to the Partpay acquisition and it initial timing and Christmas period. While Christmas is a high volume transaction period, the revenue and interest generation from these periods had not been realized.
UBS believes Z1P can easily hit their target of $2.2b in TV however are bearish on the customer base, stating that they believe 2.1m customer is a more realistic target. As per the most recent quarterly, Z1P saw average customer base at 1.8m and merchants grew to close to 21,000. Z1P's deal with amazon is surely to effect the price materially and this is can be seen by Z1P uping their TV to $2.3b annualized.
But if we focus on the solely on the customer base, and use a 1.8m round figure, if look at the previous corresponding quarters and estimate that forward. The previous corresponding quarters, Q3 and Q4 saw Z1P on board customers to their platform of 143k and 170k (313k total). This brings an assumed total of customers by the EOFY to 2.113m. So its easy to see where UBS got their figure. However this doesn't include the current UK segments. The roll out of the UK segment has seen no information given to investors, however if Z1P wants to achieve its 2.5m AC base, the UK segments needs to contribute substantially, also these numbers assume no YoY growth. Assume these targets are hit, TV will increase substantially and revenue by extension
Generally per $1b in TV, $80m in revenue is generated. Revenues expected for FY20 is 160m and by the looks of the basic numbers, this revenue figure look achievable (take with a grain of salt). While it is very hard to value unprofitable companies. Taking the forecast revenue and multiplying by the P/S ratio (160 x 16.3) and the dividing by shares on issues 390m. We get a price target of $6.68, shave 25% for safety and poterntial cap raises, the final assumed target is $5.01. This is however using fairly conservative estimates. If Z1P achieves their target pf 2.5m customers, i see a $5.25 - $5.75 price target by mid next year, which is not unreasonable.
One more thing to mention, if Z1P executes on all front, profitability is forecast sometime FY21, most likely by the half year results.
Finally and my most important point, if you bought Z1P on the assumption that it is the next Afterpay, you probably shouldn't by putting your money to work in equities, Z1P is not Afterpay and will never be Afterpay. If may never reach its height, it might over take it. The BNPL space is crowded and incredibly competitive.
all information taken from:
https://www.asx.com.au/asx/share-price-research/company/Z1Phttp://zipmoneylimited.com.au/files/research/2020-01-13--UBS_-_2Q20_trading_update.pdfhttps://app.stockopedia.com/share-prices/zip-co-ASX:Z1PNOT FINANCIAL ADVICE
DYOR
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