Citi also Downgrades Afterpay AFR

Afterpay: Citi downgrades to neutral

William McInnes

Citi has downgraded its rating on Afterpay to neutral saying it expected growth to slow significantly in the near term.

The broker increased its price target from $21.10 to $27.10 with an improving trend in early April providing some reassure the business can work through a recession.

The worst may still be ahead for Afterpay. 

"We continue to believe that Afterpay’s business model can survive a recession and that it has sufficient capital to accelerate growth when things normalise," said analyst Siraj Ahmed.
"However, we expect growth to slow significantly in the near term, which combined with the recent strength in the share price results in us downgrading to neutral."
The broker said it was assuming a decline in spending over the next six months and while Afterpay was yet to see a material deterioration in leading credit indictors, bad debts were expected to rise going forward.
"The key unknown is the extent of decline in consumer discretionary spending," said Mr Ahmed.
"Key upside risks to consider are greater-than-expected shift towards e-commerce and an acceleration in merchant acquisition/roll-out as merchants look for partners/solutions that can increase consumer traction.
"A protracted decline in economic conditions represents a negative risk as this could delay the recovery in consumer spending and increase losses."