How this ASX200 Share Price is having a magical spell in the equity market: Afterpay on next jump

Summary

  • Fintech's darling, Afterpay Limited closed the trading session on 25 August at an all-time high price of $92.48, up by 11.785% backed by steady business progress and the expected growth resulting from an acquisition.
  • Afterpay recently announced an expansion into Europe by acquiring Spain based peer Pagantis for ~€50 million through its 100% owned UK subsidiary Clearpay from NBQ Corporate SLU.
  • Pagantis’ acquisition will allow Afterpay to add ~150,000 active customers and welcome onboard ~1,400 active merchants, strengthening its customer base and merchant network further.
  • The Company also announced a better FY20 trading update compared to the previous one provided in July, with an improved Net Transaction Loss as a percentage of underlying sales.

The Buy Now, Pay Later (BNPL) industry had been bolstering the hopes of investors with share prices of the players beating their own records week on week or month over month. The companies had been instrumental in providing the cash strapped economy with an opportunity to beat the blues and buy merchandise on loans without interest. The consumers also find it convenient as they pay back the amount in instalments, and late fees, wherever applicable.

The benefits of using BNPL services have led to a colossal amount of business growth for the BNPL players. Afterpay Limited (ASX:APT), also known as fintech's darling, has stirred the maximum interest of investors in this sector.

Must Watch: Kunal Sawhney on “Buy Now, Pay Later” (BNPL) stocks

If you look at the share price rise of the company, it has given a return of 170.09% to its investors on year-till-date basis and a return of 244.71% during the last one year.

As on 25 August 2020, APT share price has skyrocketed and hit an all-time high at A$92.48, up 11.785% from the previous close.

The upward journey of the share price of the ASX 200 Company is raising further question regarding how much more price momentum is expected in the future.

While the future remains uncertain, lets deep dive into the Company's latest news.

Interesting Read: ASX 200 Corner: Why investors can't get enough of Afterpay share price bump

Afterpay plans Europe expansion through the acquisition of Spain based peer Pagantis

Afterpay has decided to enter the European Union (EU) market based on the opportunity the continent presents. According to the management, the total addressable market for eCommerce in the EU is more than €300 billion.

Europe also houses a vast number of millennial populations, with a thriving retail market focusing on fashion and beauty. The region also records considerable spending through debit cards. The Company intended to expand into a new global footprint that presents strong consumer demand for its services.

Based on the above reason, Afterpay has decided to acquire the BNPL business of Spain based peer Pagantis for a minimum consideration of €50 million through its UK subsidiary Clearpay from NBQ Corporate SLU.

Five million euros will be paid upfront to Pagantis in cash with remaining 45 million euros to be paid over three years post completion of the deal. Completion of the acquisition is expected to occur in or before December 2020. It remains subject to Bank of Spain regulatory approval for the proposed change of control.

Clearpay will acquire 100% of the shares outstanding in Pagantis SAU and PMT Technology SLU, collectively known as Pagantis.

Pagantis deal will assist Afterpay in expediting the strengthening of the Clearpay branded platform across the EU market. The deal provides Afterpay with a ready experienced team, an existing technology platform and intellectual property along with an instant regulatory right to function at all EU member states (subject to regulatory approval).

Management has also highlighted that the EU expansion allows the company to serve its retailers in all the key markets of operations, thus strengthening its business relationship along with providing a competitive channel.

Pagantis operates as a BNPL and traditional credit lending service provider in Spain, France, and Italy. In Portugal, it has received the regulatory approval to operate. The four nations’ markets provide an opportunity to tap €150 billion addressable eCommerce market.

The acquisition will enable the Company to add ~150,000 active customers and onboard ~1,400 active merchants of Pagantis. Merchants and customers who complement Clearpay's EU roll-out would be given an opportunity to transition onto the re-configured product post Clearpay EU’s launch in the third quarter of FY 2021.

According to CEO and Managing Director, Anthony Eisen, acquisition of Pagantis provides Afterpay the opportunity to expand to crucial countries located in Southern Europe and other regions with necessary regulatory licencing along with infrastructure and resources.

He further said that the new markets will enable its global retailers to offer Afterpay services in more regions and will create an opportunity for Afterpay to serve a whole new customer base with Afterpay's differentiated and customer-centric model.

Updated guidance caused prices up to then 52-weeks high price of $82.000

On 20 August 2020, APT share price skyrocketed to its then 52-week high price of A$82.000 during the trading session, backed by its previous day (19 August) updated guidance that demonstrates unaudited Net Transaction Loss (NTL) for FY20 to be around 0.38% as a percentage of underlying sales, a decrease from 0.55% from 7 July update.

The new unaudited net transaction margin for FY20 as a percentage of underlying sales is at approximately 2.25%, an increase from ~2.0% from the previous update. EBITDA excluding significant items is at ~A$44 million, significantly higher than the previous month’s July Trading Update of A$20-25 million.

Source: Company’s Update, dated 19 August 2020

The Company received higher than expected collections of instalment payments, which drove NTL percentage down than the initial update. Lower NTL percentage means lower provision and lower losses than anticipated in FY20.

Also Read: ASX 200 Corner: Why investors can't get enough of Afterpay share price bump

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