Afterpay Touch Group Limited (ASX: APT) today announced the appointment of external auditor Mr Neil Jeans to carry out an audit in respect of Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) program. The news sent the shares to surge over 3.328% to trade at $27.010 as at 29 July 2019 (12:49 PM AEST).
The appointment is in accordance with the notice issued by the government agency Australian Transaction Reports and Analysis Centre (AUSTRAC) on 12 June 2019. It outlines the company’s commitment to control terrorism financing and money laundering risk, including the implementation of strict spending limits in a Buy Now Pay Later sector.
Mr Neil Jeans is a member of Melbourne-based specialist AML/CTF firm. He is one of the three specialist auditors nominated by Afterpay in accordance with AUSTRAC’s notice.
As per the notice, the external auditor is to focus on the key stated areas for the period from 19 January 2019 to date in the preparation of audit report. APT further informed that a final copy of audit report is to be provided to AUSTRAC within the period of 120 days of the appointment of external auditor.
Afterpay Touch recently completed the capital raising of $317.2 million via an institutional placement, fully underwritten. The fresh capital was raised through an issue of 13.8 million shares priced at $23.00 per share, reflecting the top end of the placement price range.
Concurrent with the Placement, Afterpay also announced the secondary sell-down wherein directors of the company- Anthony Eisen, Nicholas Molnar and David Hancock- sold 2.05 million, 2.05 million and 0.40 million shares, respectively, to two US cornerstone investors- Tiger Management and Woodson Capital- at the placement price of $23.00 per share.
Afterpay intends to utilise the proceeds raised from placement towards its mid-term plan that targets an accelerated GMV growth in the United States (US), the United Kingdom (UK) launch and continued investment in Australia and New Zealand (ANZ) region.
Afterpay’s Mid-Term Strategy
Customers and retail partners are the two primary pillars of Afterpay’s business model while its strategy remains focused on platform innovation, global merchant and customer growth, and scaling of infrastructure in Australia and internationally.
In a mid-term three-year plan, Afterpay’s targets to achieve A$20 billion of GMV by the end of Fiscal 2022, with a net transaction margin of ~2%. Afterpay’s strong international growth strategy is expected to require incremental capital that would help the company to invest in enterprise merchant acquisition as well as in scaling SMB capability ahead of the curve.
Key Targets of Afterpay’s mid-term strategy (Source: Company Presentation)
Based on its experience, Afterpay further confirmed the positive outlook for growth in US market as its eyes clear scale-up opportunity in US also supporting an accelerated investment in the global landscape.
Half Year Result
Afterpay reported an increase of 147% or $1.4 billion to the underlying sales of $2.3 billion during the six months ended 31 December 2018. Active customers increased 118% to over 3.1 million and active merchants grew 101% to ~23,200 at the end of December 2018, compared to the previous corresponding period.
The report read that the investment in risk management capabilities with continued scale benefits has enabled APT to bring down gross losses as well as reducing late fees. As a result, late fee income as a percentage of total Afterpay statutory income declined materially from 22.5 % in pcp to 17.6% in 1HFY19.
The reduction in late fee income reportedly had no material impact, reflecting the strength in Afterpay’s business model which places income from merchants – not customers – at its core. It was also supported by the increase in transaction processed and the decline in gross loss rate that reduced from 1.6% in H1 FY18 to 1.1% (pro-forma) in H1 FY19 as a percentage of underlying sales. Net transaction loss (pro forma) stood at 0.5% at the lower end of target range of 0.6%-1.0%.
Snapshot of APT’s 1HFY19 performance (Source: Company Presentation)
Global expansion of the group has given significant exposure to Afterpay’s platform into new markets. Afterpay’s buy-now-pay-later services are responding to the generational shift which includes two out of three 18-30 aged people in the US not using a credit card.
APT’s target of over 2,000 active merchants and 1 million active customers in the US was successfully achieved in less than eleven months of its operations. Its customer base grew by ~40% in US alone over the period of 8-week post the 2018 New Year and Christmas period.
The company further informed that Australia and New Zealand segments are on track and now APT is available in nearly 20,000 shopfronts, with services available for dentistry and optometry sectors among others.
Afterpay is working in collaboration with I-MED Radiology Network, Australia’s largest medical imaging provider, to evaluate the effectiveness of the Afterpay service in imaging. This comes after the successful expansion into the dental and optometry segments.
More interestingly, Afterpay Touch has been receiving positive feedback from US and Australian merchants in relation to increased sales, customer experience and customer basket sizes.
Its American partner URBN Group is reportedly working alongside Afterpay in its initial expansion into the UK, along with other international and local merchants. Afterpay also received the significant support from Urban Outfitters who agreed to be the partner merchant in APT’s UK launch.
On the customers front, the company experiences strong support from millennials that presently make up to 27% of the global population and expected to have the highest spending power at nearly $15 trillion worldwide by 2020 (Source: Afterpay Report).
APT stock price last traded at $27.100 on 29 July 2019. The stock has gained 86.85% in the past 12 months including a positive price change of 9.74% recorded over the past three months.
The market capitalisation of the company stands at $6.6 billion with shares outstanding of 252.64 million.
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