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Afterpay analysts weigh in after yesterday’s AGM trading update

Analysts have updated their price targets after yesterday’s trading update for the buy-now, pay-later firm.

Afterpay Touch Group Ltd - Afterpay analysts weigh in after yesterday’s AGM trading update
The next event on the Afterpay calendar is the release of the AUSTRAC report later this month

Afterpay Touch Group Ltd (ASX:APT) provided a business update yesterday for the four months following June 30 2019.

All eyes were on growth metrics for its three geographical areas, Australia & New Zealand (ANZ), US, and UK.

The figures are of course relative, everyone knows Afterpay is growing aggressively, but is the growth more or less than expected by the market?

For example, Afterpay growing its sales by 200% is considered bad news if the market was expecting 240% growth.

Shares plunged over $4 from highs in minutes

If we are to let yesterday's price action tell the story, it is still a touch confusing as shares opened at $31.10, up 6.5% on the prior day’s close.

The shares ran to their high of the day in the first couple of minutes of trading hitting $31.98 (up 9.5%) but proceeded to drop over $4 over the next 20 minutes, hitting a low of $27.81.

Shares spent the rest of the day slowly grinding higher from the low to finish at $29.37, up 18 cents or 0.62% on the previous close.

Considering this stock has been known to run 10% on good news, does this mean yesterday’s result was in-line with market expectations? Hard to tell.

Now that the market analysts have had time to read through the business update and update their models and price targets, today’s trading will give us a firmer view on this.

Majority of analysts remain bullish, UBS the bear

The majority of analysts on the street remain bullish on the stock, Bell Potter, for example, raising their price target to $45.50 and Morgans to $32.60.

UBS remains the biggest Afterpay bear with a $17.60 price target.

$200 million raising but dilution not material

Along with yesterday’s business update that revealed solid growth in ANZ and the UK and strong growth in the US, Afterpay noted that it will raise $200 million in a private placement.

Afterpay has agreed to issue $200 million worth of stock priced at $28.50 to Coatue Management, a US-based technology investor.

Market commentary yesterday did suggest the dilution from the placement (as more shares are issued the price of those shares naturally lowers) may have been the reason for the fast sell-off but the dilution is worth about 80 cents, not $4.00.

Given the stock can easily move $1.00 on a regular day of trade, the dilution from the placement is unlikely a material factor.

Afterpay affects ASX listed peers

Given Afterpay is considered the leader in the buy-now, pay-later space, often its trajectory can have an effect on the other listed peers in the space being Zip Co Ltd (ASX:Z1P), Splitit Ltd (ASX:SPT), FlexiGroup Limited (ASX:FXL) and Sezzle Inc (ASX:SZL).

Sezzle is a US-based player and Afterpay’s update yesterday suggested it is experiencing the strongest growth in the US.

Investors will no doubt be interested to find out if Sezzle is also sharing in that market growth.

Quick facts: Afterpay Ltd


Price: 128.38 AUD

Market Cap: $37.38 billion

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