Afterpay Valuation, page-351

JC Fraser:
You make an excellent point regarding the interest rate part of this equation longer term, which I would like to further examine.Please anyone correct my rough calculations if I’m wrong as I’m no road scholar, but just trying to understand the maths as we go along this apt journey, but in response what are your thoughts on the following :
- I believe we are low interest for years if not 10 years.
- even if rates increase i think it will be 2-3%, then possibly down again. So over 10 years we’ll still be low
- lets work on loan rates potentially doubling to be conservative (ie: going up much more than I think they actually will)
- would apt be paying about 4% atm with their terms of finance? Lets work on that then double it to 8% over the next decade to highlight your concerns.
- currently they get 4% from the merchant every 8 weeks? So over 52 weeks they get 26% right? ( remember they only pay their 4% per annum calculated daily for the time they have borrowed the money. In fact it’s even less as every 2 weeks a payment comes off that 8 week loan so they are paying far less than 4% annually over 8 weeks, it’s probably more like 3% averaged out, but lets stay conservative and pretend they’re paying the full interest on the whole loan for all 8 weeks).- over the year they pay 4% on the loan to finance their model.- So they currently “net” 22% on interest alone- So if they go to 8% interest they will then be netting 18% over the year instead if 22%? (26% - 8% = 18%?).

That’s an idea of the risk your pointing out JC?If above figures are about right, and they grow as we think, isn’t the net profit ultimately attainable much better to be netting 18% of, say, 200 billion turnover (10 years time) than current 22% of 5 billion turnover or whatever it currently is?And as costs at that stage will be considerably less as a % of business (due to leverage and scalability I’ve often spoken about as they grow) chances are the overall ROE will be greater despite this doubling of interest rates?If those rough calculations are in the ballpark, I have zero concern over a doubling of current interest they may pay on their financing terms over the next 10 years.Thoughts everyone?