AFR: RBC says Zip sell-off overdone

RBC Capital Markets says the near 60 per cent fall in Zip Co.'s is overdone, saying the company can survive a material rise in bad debts.
The broker held its 'outperform' rating on the stock but dropped its price target from $4.10 to $3.70, still 136 per cent above its Thursday close.
The market is currently pricing in a bearish medium term view of materially lower top-line growth and surging bad debts," said analyst Tim Piper.
"While the consumer finance sector is facing a tough macro outlook, in the report below we show Zip can withstand a material rise in bad debts due to its capital position, diversified business model and strong underwriting standards."
The broker said Zip had many levers to pull to manage the performance of its book including lowering its account limits, varying its transaction limits, encouraging faster repayment and implementing higher credit requirements for new customers.
"There are levers to pull from a cost perspective too," said Mr Piper.
"We no longer expect an aggressive push into the UK in 4Q20 which reduces OPEX investment near term, while marketing spend and head count growth can also be reduced if needed."