HUM (ASX) Buckle up for $2

Originally posted by StefanF: ↑

I'm not saying FXL is or isn't undervalued, I'm saying that you can't just look at a market cap of 1 company and use another company a target market value (notice how I'm using market value not SP for exactly the reason that you noted).

New and seasoned investors often make that mistake, and in behavioural economics this fallacy is called anchoring bias. It's like Bunnings putting a $600 BBQ at the entrance, and as you see it your mind (subconciously) noted that $600 and anchors it to a BBQ. Suddenly a $300 BBQ doesn't seem all that expensive.

Anyway, the reason why APT is in my mind a much better investment than FXL is because FXL lacks all the things that make APT great.

1) Leading the space, giving it considerable pricing power with merchants. The leaders (having the most customers) will never have to worry about having to reduce the price of their product unlike smaller competitors.

2) Loans are simple and 6 weeks in nature. Average receivable turnover is 4 weeks. This massively limits credit risk as it's much easier to foresee circumstances 6 weeks in advance. The main reasons why people default on their bank loans are unemployment and divorce related. FXL deals in higher valued loans. They have realised that lower valued, high frequency loans make more commercial sense but they are far behind competitors in this space.

3) Default rates for APT are at 1% and there has been no material shift since COVID-19. Partly due to government intervention and in my opinion partly due to people with uncertain circumstances not shopping. Default rate is much higher for FXL as per (2).

4) APT and Klarna are the worldwide leaders in BNPL. They are both expanding aggressively into multiple geographic locations. Once these markets mature the profits will rain in. Look at Afterpay's ANZ region (mature market) which is considered "highly profitable" (as per last announcement). This may take time. No one is buying APT expecting to collect a dividend in the next few years.

5) Funding facility are paid an annual %. So lets say 6%. Afterpay users us the service, in a mature market, 22 times and each time Afterpay makes at least a 4% cut. This miss-match makes this a very profitable business.

6) Afterpay is creating 6,000 lead referrals to merchants per month. This will only increase. So not only is Afterpay providing a material increase in conversion rates and basket sizes, it also works as a marketplace that provides significant business to merchants. The feeds back into point (1) and a reason why Afterpay, as the market leader, will not have to compromise the cut they are making.

7) Big data. Afterpay is collecting and analysing a huge amount of data and is publically releasing interesting information on spending habits and consumer habits. This can be very valuable to merchants and will be a key revenue driver in the future.

8) Strategic investments by some interesting key players such as a technology-focused hedgefund in the US and Tencent in China. Heck, if Afterpay announced integration into WeChat (800 million users) tomorrow the share price would go past $200 overnight.

Anyway these are just some of the reasons why APT is priced at $18 billion and if you want to know why FXL isn't I'd encourage you to look through these points and see how peers such as FXL compare.

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great insights stefan. would place greater weight on simplicity. they are great in product design, making it a marketers dream. execution and executive team is high class.

fxl ..bundll, superbundll, interest free....gets messy

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Last 41.0¢		Change 0.005(1.23%)		Mkt cap ! $201.4M

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great insights stefan. would place greater weight on simplicity....

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great insights stefan. would place greater weight on simplicity....

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