FY20 update: Afterpay (ASX:APT) share price halted

The Afterpay (ASX: APT) share price is in a halt after announcing a number of things about FY20 and launching a capital raising.

What is Afterpay?

Afterpay is the owner of the popular “buy now, pay later” app. As of 2019, Afterpay had over 4 million registered users worldwide, making it one of Australia’s true technology success stories. Afterpay is trying to emulate its outstanding success in Australia by expanding its reach into the UK, using the ‘Clearpay’ brand name, and into the USA, where it has signed major social influencers to endorse its service.

Afterpay update

The buy now, pay later ASX share gave a trading update for the 3-month period to 30 June 2020.

In the FY20 fourth quarter Afterpay saw underlying sales of $3.8 billion, an increase of 127% compared to Q4 FY19. As you’d expect, this was Afterpay’s best quarter which reflected the shift to e-commerce since COVID-19 appeared.

Overall, the company saw $11.1 billion of underlying sales in FY20, up 112% on FY19.

Merchant revenue margins for FY20 are expected to be in line with or better than the first half of FY20 and FY19.

The net transaction loss (NTL) for FY20 is expected to be up to 55 basis points. The ANZ NTL has remained low whilst the US and UK have improved in the second half of FY20 compared to the first half.

The net transaction margin (NTM) for FY20 is expected to be approximately 2%, underpinning a pathway to longer term profitability for the overall business.

Active customers grew 116% to 9.9 million in FY20. US active customers grew to 5.6 million and UK active customers grew to 1 million.

Active merchant numbers rose by 72% to 55,400 in FY20. In the US merchant numbers jumped 202%. The UK exceeded 1,000 merchants in the first 12 months of operations.

Expansion into Canada is expected in the first quarter of FY21. Afterpay also expects to expand into stores in the US this quarter as well.

The company announced a number of capital management initiatives including an increase to its NZ debt facility, an extension of its US debt facility and the imminent establishment of a GBP100 million facility to fund the UK growth.

Afterpay profit expectations

Afterpay revealed that it expects FY20 EBITDA (click here to learn what EBITDA means) is expected to be in the range of $20 million to $25 million. This guidance excludes significant items like share-based payments and foreign currency.

Capital raising

Afterpay is doing a fully underwritten institutional placement to raise $650 million. Pricing will be determined by a bookbuild, but it will have an underwritten floor price of $61.75, which is a 9.2% discount to the closing price yesterday on 6 July 2020.

Afterpay will introduce new shareholders based on factors like the likelihood of long term support, strategic alignment and how fast they put their bids in.

Regular shareholders will then get the chance to buy up to $20,000 of shares, with the price yet to be decided. But it could be the placement price. The share purchase plan (SPP) aims to raise $150 million.

Founder sell-down

Afterpay co-founders Anthony Eisen and Nicholas Molnar are each going to sell 2.05 million shares, being 10% of their respective holdings. This is approximately 1.5% of the total Afterpay shares. The sell-down will be fully underwritten with pricing determined by the placement.

They won’t sell any further shares until after the 2020 AGM.

Summary

The raised money will be used to maintain a strong balance sheet and accelerate growth. Clearly Afterpay is doing well growing its underlying sales. But I wonder when we will see the company start generating a net profit? With the Afterpay share price above $60 I don’t see it as good value. But it keeps rising. It will be very interesting to see where Afterpay is in three years time.

 

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