Ann: AUSTRAC Update - Interim Report, page-7

The Afterpay Touch Group Ltd (ASX: APT) share price will be on watch today after a leading broker added the payments company to its conviction list.Which broker is bullish on Afterpay Touch?According to a note out of Goldman Sachs, it has upgraded Afterpay Touch’s shares from a neutral rating to a buy rating and added them to its conviction list. The broker has also lifted the price target on its shares to a lofty $42.90, which implies potential upside of 35% over the next 12 months.Goldman made the move after it upgraded its frequency of use assumptions for the US and UK following a review of the company’s disclosures in its FY 2019 result.The broker notes that the early patterns of repeat use in the US “showed that 74% of transaction value in June 2019 was from returning customers and that ANZ users who have been on the platform for three years are transacting over 20x p.a. (vs. >4x p.a. in Year 1).”The broker believes this is a big positive because its shows: “1) resonance with users (i.e., indicative of future adoption by new users and merchants); 2) drive turnover in APT’s receivables book (capital efficiency accelerates); 3) signal lower default rates (bad debts and recovery costs decline relative to GMV); and 4) provide strong operating leverage as opex below the Net Transaction Profit line is unlikely to materially increase if frequency of use drives the growth.”In light of this, the broker has revised its gross merchandise value (GMV) forecasts and expects Afterpay Touch to achieve GMV of A$29.2 billion in FY 2022. This is 46% above the company’s A$20 billion+ target.It has also revised its net transaction profit margin higher to just under 2.2%, which is above the company’s target of 2%. This ultimately led to Goldman increasing its earnings per share estimate for FY 2021 to 30 cents and for FY 2022 to 71 cents.