Afterburners On

Afterpay’s business update was ahead of Ord Minnett’s expectations, which we note were at the top of the market. The acceleration in ‘buy now, pay later’ (BNPL) sales is clear, with Afterpay rapidly expanding in all of its geographies.


Total active customers across the group now number 9.9m, including 5.6m active customers in the US, which was a clear standout, and the company has reached total transaction value (TTV) of $4.0bn in the second full year of operations of the US business. Afterpay is now adding about 100,000 active customers per week in the US, similar to the levels experienced in the seasonally strong December quarter of 2019. The US business is still in its early days, as it has reached only 2.3% of US adults compared with more than 14% of adults in Australia and New Zealand (ANZ).


Despite the impact on in-store volumes from COVID-19 in ANZ, this segment also surprised positively owing to the strength of the shift to online.


The number of active merchants also grew significantly across all regions during the period to a total of 55,400 at the end of the financial year, up 72% on the same period last year.


Afterpay is aiming to raise $650m via institutional placement and $150m via a share purchase plan. The funds will be used mainly to invest in existing regions, expedite expansion into new markets, and ensure balance sheet strength and thereby the company’s ability to execute on potential M&A opportunities.


This should position the business well for rapid and broad expansion not only in its existing geographies, but also in new regions – we anticipate it will enter Western Europe and possibly Asia in the medium term.


We have increased our revenue forecasts over the FY20–22 forecast period, having incorporated higher customer numbers and slightly higher average spend per customer, to match up with FY20 achieved numbers. We have also included slightly higher costs, which has reduced our operating earnings and net profit forecasts. Our valuation has increased, however, after factoring in our higher customer and TTV estimates.


The company has a market-leading position in the BNPL sector and, with an average transaction size of $153 and an average balance of $211, it is well placed to provide consumers with a customer-friendly financing solution for some time to come. We maintain our Buy recommendation and have raised our target price to $76.70 from $64.70.

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