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DIVERSIFIED FINANCIALS

 

Afterpay Touch Group (APT)

Two Key Milestones

U.S. Growth Rate Overtakes A&NZ

The Afterpay customer growth rate in the U.S. has jumped in the last month, from an already rapid rate. In November, Afterpay U.S. is set to add ~140,000 new customers, which compares to the ~70,000 added in October in that market. The doubling in the number of new customers added in a single month bodes well for the future outlook of the U.S. business, which now boasts over 450,000 total customers. We have upgraded our overall customer (which includes A&NZ) growth numbers to 210,000 per month in the December quarter, which we believe remains conservative until more detailed information is provided for the wider group and until we have more history of progress.

ASIC Sets First Marker for the Sector

ASIC has released its review into the Buy Now, Pay Later sector, and overall it has fallen largely in line with our expectations. ASIC has again, recommended that it be provided with the powers to intervene into the sector, but has stopped short of insisting that the players be included as part of the credit code. There are some issues that are raised, but nothing we see as insurmountable or systemic. We see this as a positive, but cautious, first step by the regulator into the sector. ASIC will focus on this fast growing sector, but appears willing to work with the participants to deliver better outcomes for consumers.

Earnings revisions

Following APT’s AGM update, we have upgraded our underlying closing customer assumptions by between 5-8%, while we have modestly adjusted our cash EPS by -1.6%, +2.2% and +1.8% for FY19, FY20 and FY21 respectively. We note that our CLV based valuation prioritises customer growth, particularly where gross margin and retention rates are healthy.

Following these revisions our revised Price Target is $23.63 per share (previously $21.59), with our Buy recommendation remaining unchanged.

Disclosure: Bell Potter Securities acted as co-manager of the $117m August 2018 placement  and received fees for that service.

1		Recommendation:	Buy (unchanged)	Previous Close:	.45	Price Target:	.59 (previously .05)

 

Lafitani Sotiriou