The Swiss bank’s analysts said the capital raising was supportive of the broker’s view on its capital intensive business model.
They estimated Afterpay’s loan book was about $850 million at June 30 and if it were to grow to $52 billion by fiscal 2025 – as in the UBS base case – then the size of its net receivables might increase to $3.8 billion.
“In our view, APT’s raising, therefore, is insufficient to fund the growth on its own, with further equity, warehouse or other debt funding required.”
“Based on sell-side consensus forecasts, we continue to strongly believe the market is under-appreciating the APT’s capital intensity.”
UBS had a price target of $27.
The silver doughnut said the company’s fourth-quarter update showed that “COVID-19 has accelerated APT’s business in the short term, which ultimately benefits it for the long-term”.
Afterpay booked $3.8 billion in underlying sales in the quarter, a 127 per cent increase on the corresponding period the year before and a 52 per cent uptick on the previous quarter.
“This reflects continued scaling of the business in all three markets, as well as a boost from the shift to a greater penetration of online sales during and as a result of COVID lockdowns.”
“Afterpay’s execution is strong across all three key markets,” Macquarie said.
“The acceleration in growth during the current half bodes well for momentum in the years ahead, and for entry into new markets.”
Macquarie has a price target of $70.
Analysts at Morgan Stanley said Afterpay’s June quarter was “rather impressive” and its sales numbers were well ahead of the broker’s and consensus forecasts.
“While we expect upgrades to consensus estimates, some of the good news is already in the share price with the stock rerating to 25xFY21E revenues from 12x in February.”
Morgan Stanley’s price target was $36.
Bell Potter said the increase in Afterpay’s capital firepower would help it “to turbocharge its pursuit of the market opportunity before it and to de-risk the business”.
“This raising makes sense,” Bell Potter analysts said in a note to clients.
“In the last year, APT has more than doubled its GMV to $11.1 billion and customer numbers to 9.9m, where the runway for further growth appears bright.”
The broker said further growth in the business would be driven by higher customer numbers, increased frequency and further global expansion.
It saw Europe as the next obvious expansion point or somewhere closer to home in South-east Asia.
Bell Potter has a price target of $81.25.
Analysts at Morgans said it was “hard to find any real faults in APT’s 4Q20 numbers”.
Sales had grown, alongside group customers and merchant numbers, while group revenue margin, net transaction margin and net loss ratio were “all broadly stable on recent periods”.
It said the capital raising was “opportunistic” after a strong share price run. Afterpay shares are trading up more than 115 per cent year-to-date.
“While a concurrent founder sell-down ($250m) comes with the usual negative connotations (and only a ~5 month commitment to not sell further stock), the parcel sold is only 10 per cent of their respective holdings with both founders maintaining sizeable stock positions (18.4m shares each).”
“APT’s momentum continues to be highly impressive, but trading on 37x FY20 revenue we see its valuation as fair and maintain our hold call.”
Morgans has a $68.58 target price.