Technology Stocks With Over 20% Return in Last Three Months - Afterpay and Smartgroup

Technology is defined as the application of scientific knowledge into practical use. The Australian government considers increasing science, technology, engineering and mathematics (STEM) capability at the core of its science agenda, which is highlighted in its National Science Statement.

With changing global economy, new technologies and new industries are emerging. Owing to which, there would be a requirement of new skills at each level. In Australia, the government aims to

• Engage all its citizens with science;
• Develop scientific capability as well as skills;
• Deliver new research, knowledge and technologies;
• Enhance the lives of Aussies via science and research.

The National Science Statement sets out the role, focus along with the core principles of the government for science policies and activities. Principles to guide the Australian government with respect to making investments and decisions are:

• Ensuring scientific research investment focuses on research that is of high quality;
• Ensuring stable and predictable support for research;
• Promoting and supporting alliance across fields, sectors and at the global level;
• Maximising opportunities for all Australian citizens to participate in the science process.

Australian government supports science and technology as fundamental for the country’s growth.

Some of the Emerging Technologies in Australia

• Artificial Intelligence
• Blockchain
• IoT
• Quantum Computing

In this article, we are discussing recent developments of two technology companies, which have delivered a return of more than 20% to investors in the last three months.

Smartgroup Corporation Ltd

On 18 October 2019, Smart Packages PTE LTD announced the sale of its 25% stake in Smartgroup Corporation Ltd (ASX:SIQ), fully underwritten by Macquarie.

On 21 October 2019, SIQ made an announcement related to the Block Trade Agreement between Macquarie Capital (Australia) Limited and Smart Packages PTE LTD (SPPL). Under the Agreement, Macquarie, along with its affiliates, underwrite the disposal of 32,608,245 securities in Smartgroup Corporation. Smartgroup Corporation was the issuer of the securities and each security was issued at $11.30. Thus, by selling 32,608,245 securities, the total proceeds generated for Smart Packages PTE LTD was $368,473,168.50.

Smart Packages PTE LTD, which has been a long-term investor in SIQ, acquired the company in its initial stage of development in 2012. SPPL was the largest shareholder in Smartgroup even after the company’s Initial Public Offering in 2014 at $1.60 per share.

Under the competent stewardship of the board as well as execution by the management team, the company continued to deliver an outstanding return to its shareholders.

Afterpay Touch Group Limited (ASX: APT)

On 21 October 2019, Afterpay Touch Group Limited (ASX:APT) made an announcement, responding to the recent media and an analyst report on possible regulatory developments following the RBA’s 2020 review of payments regulation, including “surcharging” practices in Australia.

APT confirmed that at present it is not subject to an RBA inquiry or review process. However, it is ready to get engaged with the Reserve Bank of Australia as part of its broad based, regular review of the payments industry next year.

Afterpay highlighted that its platform provides value to merchants as well as customers that extend far beyond the payment processing aspects of a transaction. The company’s business model provides extremely customer centric service, based on trust, loyalty as we as responsible spending practices. This approach has helped the company in developing a superior and frequently returning customer base with minimal outstanding balances and industry leading loss rates.

Afterpay also clarified that it’s a free service for those who pay on time. The company generates most of its revenue from those merchants who opt to offer APT as a service instead of merely a type of payment.

These merchants are able to derive material value via its digital platform. Below are some of the other features of the digital platform.

• APT is a marketing channel, which helps in reaching core millennial and Gen Z consumers.
• Afterpay directs multiple leads each month to several thousands of small to medium size companies.
• Promotes as well as takes part in retail event to represent its merchant partners. The digital platform then provides valuable data insights that help these merchants in improving their ability to reach and interact with their present and newly referred clients.
• Apart from growing new customers, the platform supports in enabling higher conversions as well as average order values. APT also assures guaranteed upfront payment to all its merchants and at the same time protects them from all fraud and non-payment related risks.

Afterpay services are not available for transactions for daily items like groceries or petrol. Merchants use several paid strategies to reach end-users and offer them with great customer experience.

The company in the announcement also highlighted on the below points related to the existing Australian payments system regime:

• For the “Buy Now Pay Later” sector, APT believes that there is a requirement of the legislative and/or policy change to be brought under particular payment system regulation.
• “Buy Now Pay Later” sector (BNPL sector) accounts for a very small part (less than 2%) of the total transactions in the economy.
• BNPL sector is competitive and comprises of various players which offer different products and services.
• Amongst various OECD countries, Australia is one such member, where surcharging fees are permissible and subject to regulation. Across all the member states of the EU including the UK, surcharging fees have been banned for retail credit and debit card transactions since January 2018. Similar bans are applicable in many states in the US.
• In spite of legislation, which lets merchants to surcharge card transactions in Australia currently, very few opt to do so, because it is usually perceived negatively by end-users.

The below table outlines the stock performance of the discussed companies, and their three-month return, as per the ASX, on 23 October 2019 (AEST: 02:37 PM):

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