UBS Sell and $17 target!, page-141

9th July 2019

Afterpay (APT) -4.85%: Goldman Sachs moved APT down to a hold today, and the stock got hit -4.85% as a result. With only 1 other hold out of the 8 brokers that cover the market darling, GS is sticking its neck out a little here They increased their PT marginally, but they struggled to come up with a reasonable risk vs reward scenario to keep the buy on the stock - which closed less than 1% below the new PT overnight. They think the horse may have bolted.
The analyst downgraded FY19 revenue by 7% just a few weeks out from the result, and expects the company to swing back into an EPS loss for the year. Revenue for the next two years was also revised lower by 2-6% apiece. To us, the valuation does look full. However, even if AfterPay miss at the result, I would expect to see a rally in the share price if they can talk up progress in international markets. We are bearish APT at current prices.

25th Sept


Goldman Sachs which drastically increased its target for Afterpay and put the stock into their conviction buy bucket. The report from the broker is extremely positive, and has revenue increase more than 4 fold in the three years from FY19 through to FY22 to $1.39bn on the assumption that Afterpay significantly beats their own base Gross Market Volume (GMV) by almost 50%.
The bulk of the Goldman’s 58% increase to the target price stems from a continuation of the growth in frequency of use for APT’s customers, as well as significant penetration into the US and UK markets which, when combined with Australian retail presents a $1tr market for the Buy Now Pay Later space. The broker has also thrown an M&A premium on the stock, with the analyst suggesting that an EV/EBITDA multiple of nearly 40x in FY22, and on their estimates suggests the potential for a $47/share takeover bid. Goldman’s target price of $42.90 is 10% above the next highest in the market, while Morningstar are the only broker to have a sell on the stock with a $22 price target. The AUSTRAC investigation will likely be insignificant in the medium term for APT even if some recommendations do come through. The GS note has some ‘blue sky’ assumptions in the model which seem farfetched, but not out of reach given what has been seen in the space already.