BNPL Stocks, Capital Raise and Success Stories – Splitit, Afterpay

Summary

• BNPL stocks have been riding high on the ASX, underpinned by strong investor confidence based on factors like customer surge and increasing number of merchant onboarding.
• BNPL companies are raising capital to support further growth, facilitate business expansion, and create a strong liquidity position.
• Afterpay, the current BNPL king and investors’ favourite, recently closed a share purchase plan and an institutional placement to raise $800 million to enable geographical expansion and boost cash position.
• Splitit Payments is set for another round of capital raise post raising $16 million in the month of May.

BNPL stocks have been riding high on the Australian stock market, as investors keep pumping money into the Buy Now, Pay Later industry. The sector players, which are experiencing a customer surge and increasing number of merchant onboarding, are boosting their operations in major markets such as the US, Canada, United Kingdom, Australia, and New Zealand.

Must Read: BNPL strong run on ASX & changing stance on stimulus: Are stocks done with the run-up?

One of the key metrics in a BNPL business performance is merchant underlying sales. If the income from merchant fees is in millions, underlying sales would be in billions. Most of the time, underlying sales achieved in a day are paid to merchants within 3 to 4 business days, depending upon the business agreement and minimum clearance days required.

The underlying sales are the amount that basically the BNPL player provide as a credit to the customers without any interest. A BNPL business generally receives money through four instalments within a period of six to eight weeks.

With ever-growing sales, it is crucial for companies to maintain good liquidity to facilitate underlying sales. Apart from supporting underlying sales, liquidity is required for business expansion by entering new markets or availing M&A opportunities. The major way to keep oneself liquidity rich is through capital raise, cash flows, debt funding, etc.

Interesting Read: Cashflows for Fintech & BNPL Stocks: Sezzle, Afterpay, Zip

On that backdrop, we would discuss few recent capital raising programs undertaken by two major BNPL sector players, which have been tasting success to zenith amid the pandemic.

Afterpay Limited (ASX:APT)

Afterpay Limited operates in the US, Australia and New Zealand, and in the United Kingdom, the Company operates under the name Clearpay. While the key operating regions have been Australia and New Zealand, APT had onboarded more than 5 million customers in the US within a very short period of time. Its UK business also recorded onboarding of more than one million customers within a year of launch. Currently, the Company serves around 10 million active customers through more than 55,400 merchants, globally.

$800Mn Capital Raising through Institutional Placement and SPP in July

On 7^th July 2020, APT announced a capital raising program of ~$800 million, including $650 million via a fully underwritten institutional placement and approximately $150 million through a non-underwritten share purchase plan (SPP). The Company, which has an ambition to uplift its sales from online shopping and expand into new markets such as Canada along with strengthening balance sheet, requires additional funding to execute the same.

The institutional placement strongly supported by existing and new shareholders was completed on 8^th July 2020, while the Share Purchase Plan was finalised on 30 July 2020. Under the institutional placement, shares were priced at $66.00 per share, representing a 2.9% discount to the closing price recorded on 6 July 2020.

The share purchase plan offered eligible shareholders the opportunity to acquire additional new shares in the Company worth up to $20,000, priced at $66.00 per share. Under the SPP, 2,070,776 shares will be issued.

Sell-down of 2.05Mn Shares by APT Co-founders

As part of the institutional bookbuild, Afterpay co-founders, Anthony Eisen and Nicholas Molnar sold 10% of their respective shareholding, amounting to 2.05 million shares. Both the co-founders are anticipated to remain the largest shareholders of Afterpay and have ~18.4 million shares each.

The Company recorded ~$1.19 billion in pro forma cash balance, as on 31 May 2020, including placement proceeds worth $650.0 million.

The funding, along with current in-hand debt facilities, boosted its balance sheet significantly, creating opportunity to build a solid liquidity position to mull for M&A opportunities in the short to medium term.

Since experiencing record low in the March bear Market, APT’s share price has increased by almost 7x-8x. In the last three months, the stock experienced a surge of 84.21%. APT was trading at $71.060 on 4 August 2020 (AEST 02:21 PM), moving upward by 6.857%.

Also Read: New Era for BNPL Providers: Will Splitit set the trend post Afterpay?

Splitit Payments Ltd (ASX:SPT)

Headquartered in New York, Splitit has a global footprint that extends to hundreds of merchants, catering to number of Internet Retailer’s leading 500 merchants. The Company has a research & development (R&D) centre located at Israel. Moreover, its offices are located in London and Australia.

Trading Halt Over Proposed Capital Raising

On 3 August 2020, the Company announced a trading halt, as it is set to notify its shareholders and ASX regarding an upcoming capital raising program. The trading halt will end upon the announcement being released to ASX or on the earlier of the commencement of normal trading on 5 August 2020.

Robust Q2 FY20 Report Demonstrating Total Liquidity of US$58Mn

In its Q2 update, the Company announced a record increase of 85% YoY in number of customers totalling above 300k. Total merchants rose 104% YoY to cross the thousand mark.

The Q2 FY20 update revealed that SPT has US$58 million in total liquidity including approximately US$26 million in cash at bank in addition to US$32 million in unused borrowing capacity to fund further growth.

Splitit mentioned a capital raise was completed in April 2020, under which the Company raised A$16 million before costs from institutional, sophisticated and professional investors by issuing 39,024,391 new shares at $0.41 per share. Splitit will use the net proceeds to propel its growth strategy by investing in sales and marketing and technology.

Since experiencing record low in the March bear Market, SPT’s share price has increased by almost 6x-7x. In the last three months, the stock experienced a surge of 178.57%. APT closed its trading day at A$1.365 on 31 July 2020.

Do read: BNPL Bubble: How to work around stop loss + Sezzle - Unicorn on the Move