Afterpay Touch: Still investing to grow

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
26 August 2021, 1:00 PM
Sectors Covered:
Insurance, Diversified Financials

  • APT reported an FY21 NPAT loss of ~A$159m, which was well below consensus of -A$81m, although the difference appeared largely due to some one-offs, e.g. a ~A$97m statutory loss due to an increase in the valuation of Clearpay.
  • Overall we saw it as a broadly solid APT result again highlighting strong sales momentum and relatively stable key margins, albeit with larger than expected operating expenses growth tied to global expansion.
  • We downgrade APT FY22F/FY23F EPS by 20%-30% on higher operating expense forecasts. Our PT rises marginally to (login to view) with our earnings changes offset by a valuation roll-forward.
  • We see APT’s recent deal with Square as making sound strategic sense and today's result as another good set of numbers overall (albeit allowing for higher growth spend). However, with APT broadly trading in-line with our PT, we maintain our Hold call.

Event summary

APT reported an FY21 NPAT loss of ~A$159m which was well below consensus of -A$81m, although the difference appeared largely due to some one-offs, e.g. a ~A$97m statutory loss due to an increase in the valuation of Clearpay.

Overall, we saw it as a broadly solid APT result again highlighting strong sales momentum and relatively stable key margins, albeit with larger than expected operating expenses growth tied to global expansion.

The good

The FY21 sales performance (A$21bn) was impressive being up 90% on pcp and with APT achieving its A$20bn sales target a year earlier than expected. ▪ Growth in the US remains robust highlighted by strong growth in all key metrics, e.g. sales (A$11.1bn) +177% on pcp, merchants (28k) +148% on pcp, and active customers (10.5m) +88% on pcp.

The recent trend of APT delivering broadly stable key operating margins continued with the group revenue margin unchanged on pcp (3.9%), and the net transaction margin remaining above 2% (2.1% vs 2.3% in pcp).

The gross loss ratio of -0.9% was unchanged on pcp, with overall credit quality remaining sound.

The APT ANZ business produced an EBITDA of +A$195m, up 37% on the pcp, while Clearplay also swung to a positive EBITDA outcome (+A$14m vs -A$13m in the pcp). 

APT’s liquidity position is large with A$2.3 billion of capacity ($1.1 billion in cash and $1.2 billion of undrawn warehouse capacity).

There are early promising signs in newer markets, e.g. Canada is now doing ~A$211m of annualised sales (per July) and APT has 450 brands live in Europe.

The not so good

North America EBITDA losses broadly doubled on pcp (-A$101m vs -A$47m) as the company continues to grow rapidly in this market.

The group net transaction margin did dip in 2H21(1.9%) versus 1H21 (2.2%). 

APT saw a large increase (~75%-85% on pcp) in both employment expenses (A$150m) and other operating expenses (A$291m) tied to its global expansion.

Changes to forecasts

We downgrade APT FY22F/FY23F EPS by 20%-30% on higher operating expense forecasts.

Our PT rises marginally to (login to view) with our earnings changes offset by a valuation roll-forward, although we acknowledge the share price is likely to be dictated by Square’s US price until deal completion.

Investment view

We see APT’s recent deal with Square as making sound strategic sense and today’s result as another good set of numbers overall (albeit allowing for higher growth spend).

However with APT trading broadly in-line with our PT, we maintain our Hold call.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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