Next Investors logo grey

Growth Portfolio: Afterpay Touch Group Ltd (APT) - Buy

Published 18-JAN-2019 00:00 A.M.


2 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.

Click Here to View Latest Articles

Overview: Afterpay Touch Group Ltd ("Afterpay", "the Company") is an Australian technology company focused on payment technologies. The Company enables retail merchants to offer their customers the ability to buy goods and services on installment plans at no extra cost to the end-user. As of November 2018, Afterpay had 2.9 million customers and 21,000 retail merchants on-boarded. The combined entity listed on the ASX in June 2017 following the merger of Afterpay Holdings Ltd and Touchcorp Ltd.

Catalysts: Afterpay has experienced rapid growth in Australia and New Zealand across all key operational metrics – active customers, total transactions, and integrated retailers – and we see the potential for this trend to accelerate as the international expansion gathers pace. Afterpay launched into the US and UK in 2018 and early traction in the US has been promising with Afterpay successfully expanding its footprint in a market 25x larger than Australia. Successful adoption of its payment technology in foreign markets could be a long-term revenue growth driver.

Hurdles: Afterpay’s valuation assumes ongoing growth and there is no guarantee that the Company’s international expansion will be sustainable. Operating in the highly regulated payments market, Afterpay could be sensitive to legislative changes. There are risks of deteriorating consumer sentiment or customer’s ability to make repayments, which may put downward pressure on its operating margins. Afterpay operates in a highly competitive environment and may be subject to rising competition.

Investment View: Afterpay offers speculative exposure to online retail trends and emerging payment technologies. We are attracted to its revenue growth trajectory, penetration of the AUS/NZ market, and early signs of success in the US market. Risks include regulatory changes, changes in consumer sentiment, competition, and potential failure of its aggressive international expansion strategy. The US market has an inherently higher credit risk than Australia, however, to date management has demonstrated a strong track record of scaling-up the business via organic growth and acquisition. Following a 30% share price correction, we initiate coverage with a "buy" recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.