Two important players with emphasis on easy payment transactions for the customers are - Splitit Payments Limited and Afterpay Touch Group Limited. We have tried to explore how the recent development in the companies are affecting their stock prices.
Splitit Payments Limited (ASX: SPT)
Splitit Payments Limited (ASX: SPT) is a technology company and provides instalment solutions (credit card based) to businesses as well as retailers. The company launched its platform in the year 2016, targeting the universal retail market, keeping its emphasis on online credit card sales. SPT facilitates the merchants offering end-customers instalment-based payment choices, where a customer does not need to fill a credit application. The platform also offers merchants a method to increase the top-line while increasing the average order values.
To understand the working of SPT, customer pays for their buying with the use of Splitit, for which, an instalment plan is prepared. SPT authorises the total amount of the buying on the buyer’s existing credit or debit card and reserves the balance from their credit card till the time payment is not made. The first instalment is charged immediately after a few seconds when buying authorisation or upon shipping is confirmed. SPT again authorises the pending amount at the time when the prior authorisation is about to expire. SPT will charge the buyers credit card each month till the time the plan is not completed, which will reduce the hold on their credit line every month by the payment amount.
An Insight into The Merchants & Partners: The solution of the company has been utilised by 27 countries. SPT developed new merchant relationships in the countries like the US, UK, France, Italy, Australia and Singapore and others in the year 2018. SPT has strong pipeline of signed merchants who belong to different sectors, including fashion, power tools, medical and jewellery.
In addition, the company, at present, has engagement with more than 500 merchants in different parts of the sales cycle, including big global enterprise merchants. Most of them are from the target markets of the US, Canada, Australia, UK, Italy, France and Singapore, with inbound enquiries and opportunities from many other countries.
Successful Funding Through IPO: The company completed an IPO (initial public offering) in Australia in January 2019, with a capital raising of $12 million. The company has been using 3rd party funding facilities to upfront merchants on the funded plans. SPT has entered into agreements with funding partners in the US and UK. It recently signed a US$25 million framework with a UK credit fund, which includes some European countries as well.
The company recently inked an agreement with Kogan.com Limited (ASX: KGN) which is engaged in the portfolio of ecommerce businesses. The motive behind the agreement is to provide the company’s unique instalment payment solution for online buying in Australia through the Kogan.com.
The company in the month of June 2019, completed the fund raising plan by issuing and allotting new fully paid ordinary shares to the eligible applicants under SPP (share purchase plan). The company issued 377,500 new shares to the eligible shareholders at $0.80. The company, as result of Placement and SPP offer, raised ~$30.3 million.
Kogan.com is one of the largest online businesses in Australia with an active customer base of more than 1.5 million customers and known for its price leadership through digital efficiency.
The company in the month of June 2019, completed the fund raising plan by issuing and allotting new fully paid ordinary shares to the eligible applicants under SPP (share purchase plan). The Board took the decision to accept all valid applications. The company accepted the application forms from 48 registered shareholder totalling $302,000 which was equivalent to 377,500 shares. The company issued 377,500 new shares to the eligible shareholders at $0.80. The company as result of Placement and SPP offer, raised ~$30.3 million. SPT intends to use the proceeds to raise its capacity to meet the current excess demand for its products, pursue its growth strategy, and to capitalise on the current and growth avenues.
Partnership with EFTPay: The company entered into partnership with EFT Payments (Asia) Limited (EFTPay), which is a payment solutions provider established in Hong Kong, focusing on digital wallet services. The agreement is for the period of three years and accordingly, the partner, EFTPay needs to satisfy certain minimum annual targets for merchant transactions through SPT’s platform and, in return, it will pay fees to SPT, which will be based on the processed volume. With EFTPay meeting the annual targets, SPT expects to generate significant top line from this partnership agreement of between US$2.5 million to USD$5 million over the partnership period.
Hiring to Lead North American Operation: The company in the month of June 2019, announced that it has appointed Brad Paterson as MD (Managing Director), North America who will be responsible for the operation of North American business.
1Q CY19 Update: The company recently came out with an update on its performance for the first quarter of CY19. Total new Active Merchants increased by 57 or 103% to 437 Active Merchants operating in 27 countries. The company, in the period, transacted with 42 thousand new shoppers with the total number of Unique Shoppers at 0.160 million, up 36% on a sequential basis. Underlying Merchant Transactions witnessed a Y-o-Y growth of 168% to $32.8 million.
Net operating cash outflow stood at US$2.54 million during the period with cash received from customers at US$322K and cash in hand at US$6.52 million. Merchant Fees at $556,000 in Q1CY19 was up 31% on a sequential basis. The company has maintained the zero bad debt losses from over 0.160 million transactions and $128 million processed to 1Q CY19.
1QCY2019 Update (Source: Company’s Reports)
Financial Highlights for FY18: The company incurred losses of US$4.64 million as compared to US$3.42 million in FY17. Top line in FY18 stood at US$789,920 against US$260,409 in FY17, a substantial growth of 203%. Gross profit recorded a growth of 561% to US$389,793 compared to US$58,914 in the prior corresponding period. Operating expenses also grew by 29% to US$3,899,387 on Y-o-Y. Financing expenses increased by 141% to US$1,131,502 as compared to US$468,409 in FY17, largely due to revaluation of convertible loans and share based payments expense of US$378,921 against USD$351,383 in the prior corresponding period.
Addressable Opportunity for SPT: The company has a vast untapped market with addressable opportunities of ~USD4.5 trillion. The credit card market has a huge exposure of ~64.0% in Canada, followed by Australia, Italy and the USA with 37%, 36% and 32%, respectively.
Outlook: As the awareness and demand for instalment payment solutions is rising, the company remains the only global interest and fee free solution for the buyers. Looking at the business model and the growth, the company is in a position to benefit from this huge untapped opportunity. The fund raised from IPO was deployed to sales and marketing of its products, as is visible from the financial results. The pipeline for global sales is expected to strengthen further with anticipated accelerated growth in both direct and distribution channels. The addressable opportunity within the key markets for the SPT stands at US$4.5 trillion.
At market close, the stock was trading at $0.520, with a market capitalisation of $164.53 million. The stock has gained ~41% since the time of listing. However, the stock has lost ~59% in the last three months. Considering the business prospects and outlook of the underlying market, the stock may see some kind of uplift, going forward.
Afterpay Touch Group Limited (ASX: APT)
Afterpay Touch Group Limited (ASX: APT) is a technology company engaged in the payment solution offering Pay Later business (Afterpay), and Pay Now business, (Touchcorp). Afterpay is a significant driver of retail innovation, whereas Touchcorp is an innovative digital payments business, offering its services to the sectors such as telecommunications, health and convenience retail. The Pay Later business presently operates in Australia, NZ and the US.
To give an overview of the performance in FY18 (year ended 30 June 2018), the group performed strongly with revenue and other income increasing from $29 million to $142.3 million on the back of excellent growth in the number of retailers integrated with the Afterpay platform. With the effective date of merger on 28th June 2017 upon implementing the Afterpay and Touchcorp Scheme, the development was visible in the health of company’s financial statement. The financial statements and cash flow depicted the Afterpay Group for the 12 months ended on 30 June 2017.
Considering the 1H19 (ended on December 31, 2019) Performance, the underlying revenues witnessed an increase of 147% to $2.30 billion against the prior corresponding period. Total income also posted a robust growth of 91% to $116.10 million on a pro forma basis compared to the prior corresponding period. At the end of 1H19, more than 3.10 million active customers were reported, depicting an increase of 118% against pcp. Pro forma gross losses for the company grew by 1.1% of Afterpay underlying sales of $25.6 Million. Considering the performance of its peers, Afterpay Touch Group Limited’s stock has moved up significantly in the last one year, with the gains of ~172%. At market close on 5th July 2019, the stock was trading at $26.840, with a market cap of $6.82 billion.
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