Growth Focus: Afterpay Touch Group Ltd (APT)

by Patrick Taylor

Date of Data Capture: 26/9/2018
Classification: Transaction & Payment Services
Current Price: $16.97
Market Capitalisation: $3.69 B
Forecast EBITDA Growth: 46.75%
Yield Estimate: 0%
Consensus Price Target: $23.37
# Covering Analysts: 6
Discount at Current Price: 37.71%
Price Target Trend: Increasing
Signal Timeframe: Monthly-Daily
TrendBias: Up-Down / Long-Short

Short-term: Positive
Medium-term: Neutral-Negative
Long-term: Positive-Neutral

Recommendation: Buy
Focus: Capital Growth
Set up Notes:
·    Some of you may dismiss this as ‘paying-up’ for Afterpay considering the strong performance of the last 16 months – but with excellent growth forecasts and now coming out of a 35% price consolidation, it might be cheaper than it seems.
·    Fundamental growth has been exceptional with earnings climbing more than 700% from 2017 and has very aggressive growth forecasts ahead - driven by surging sales expectations - with price targets up 160% in the last three months.
·    Technically, the price looks attractive after dipping from the recent peak of $23 in August, to reach lows of $15 earlier this month before breaking through linear resistance last week.
·    Higher resistance targets are at $18, $20 and $22 with support layered at $16, $15 and $14 below.


The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.

Despite the price for buy-now/pay-later specialist; Afterpay Touch Group Ltd (APT), recently falling by 35%, it is still up over 200% in the last 12 months. That may have you wondering if they are too expensive, that we are coming in too early, and whether it is a case of buy-now and pray-later.

A fast growing company can look precarious when an investor is trying to find an entry price during the ascension stage of a longer-term uptrend - and even with the recent pullback the stock is still running a triple-figure price/earnings ratio that would normally be a cause for concern. But with investing perspective is everything and as the market is forward looking, relying solely on past performance does not work for growth investing.

Afterpay has a novel approach where the company is paid by the retailers themselves rather than by charging consumers interest payments. Following its success in Australia and New Zealand, APT believes it has a globally scalable business model and they could be right. International expansion is gathering momentum in the US, and a recent capital raising was completed to fund the acquisition of ClearPay and gain access to the UK market.

Operations show good brand recognition and loyalty with strong client retention and repeat business - this is highly important as the customer base is dominated by younger demographics underserved by traditional credit services. APT has existing partnerships with major retailers like Myer, David Jones, Office Works,  Target, Jetstar, Revolve, Lorna Jane, Adore Beauty, Cotton On, Urban Outfitters, to name just a few and has plenty of scope for further growth.

Business has been good with the last set of results showing massive growth in sales and earnings, with excellent forecasts out to 2021. Despite underlying profit growth and stronger operating margins, the company does see the need for incremental fund-raisings to support international growth. This type of approach can be well received if lead by cash flow and the market seems open to the story with strongly positive analyst sentiment reflected by the large discount to fast rising consensus target prices.

Technically the stock looks good for a shorter-term entry after the recent pullback, with signalling calling us to make the most of the linear resistance break last month. There remains some residual negativity in the medium-term which is an effect of the recent drop, but right now with strongly positive analyst sentiment and a large discount to value expectations, we are happy to pay up and go after what could be a bargain.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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