Openpay Group Ltd

Company Overview: Openpay Group Ltd (ASX: OPY) provides ‘Buy Now, Pay Later’ payment solutions to its clients. It offers flexible BNPL plans with longer terms up to 24 months, and the limits can stretch up to $20,000. Its B2B offering, OpyPro is a SaaS-based platform that helps companies to manage trade accounts end-to-end. The company provides services to customers, payment processors, and merchants in Australia, New Zealand, United Kingdom, and the United States.

OPY Details

Increase in Revenue on the Back of Improvement in Merchants and Customers: Openpay Group Ltd (ASX: OPY) is engaged in the provision of payments technology that offers Buy Now, Pay Later product. The market capitalisation of the company as on 08 June 2021, stood at ~$209.23 million. As per an announcement on 07 May 2021, the company has successfully completed a Share Purchase Plan and raised $8.7 million on the back of decent demand from shareholders. It forms a part of debt and equity funding package to raise approximately $71.2 million. The proceeds are expected to be utilised in US and UK market development, launching of new products in Australia and working capital requirements.

The company will continue to look to capture market opportunity and disrupt the payments market by offering relevant and enhanced solutions to merchants and consumers.

During Q3FY21, the company reported decent financial performance and posted an increase in active plans by ~185% to 1.7 million, when compared to the previous corresponding period. Active customers increased by ~102% to 505k. There was also an increase in the active merchants to 3.4k, up by ~70% on the pcp. Total Transaction Value (TTV) grew by ~80% to ~$83 million in Q3FY21. Resultantly, revenue increased by ~24% to $6.6 million, on the back of improved fundamentals and growth in key metrics. It has continued to focus on international expansion and entered into the US$55.8 billion US and UK veterinary markets along with a partnership with ezyVet. It ended the period with a cash position of $30.5 million as of 31 March 2021.

Improving Trend in Revenue (Source: Analysis by Kalkine Group)

Impressive Growth in Active Merchants & Customers: In Q3FY21, the company has witnessed an increased inflow of customers with a growth rate of 102% in active customer base to 505k, on the previous corresponding period. There has also been decent customer engagement, which led to 82% of plans being held by repeat customers.

Active merchants grew by ~70% to 3.4k on the pcp. It has continued to deliver on its strategy to build an Australian portfolio of high-growth Merchant businesses at scale and has partnered with renowned retailer Officeworks in this regard. As per the agreement, Openpay plans were rolled out across Officeworks online and in-store Australia wide in February and March.

Growth in Active Customers & Merchants (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 53.32% of the total shareholding, while the top 4 constitute the maximum holding. Meydan (Yaniv) and Chow Tai Fook Enterprises, Ltd. are holding a maximum stake in the company at 22.80% and 7.50%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported an increase in the current ratio to 9.34x in H1FY21, compared to 7.33x in H1FY20. There was an increase in the debt to equity ratio to 0.99x in H1FY21, from a level of 0.42x in the previous corresponding period. The total debt stood at $49.7 million as of 31 December 2020.

Growth Profile and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is faced with the risk of failure or disruption to third party integration with Merchant platforms. As such any issues related to software integration might have an adverse impact on the transaction flows to the company. Moreover, material disruption in its operating technology could lead to an impact on business activities along with damage to reputation.

Outlook: OPY is well-positioned in Australia to grow the scale of its business, with a wider range of merchant partnerships, including enterprise and large-scale eCommerce firms. As per the company, it remains a preferred player in the domains of Automotive, Health and Home Improvement space. After the successful establishment of partnership with ezyVet and gaining access to the UK veterinary market, OPY UK is planning to enter the Automotive vertical and further build its presence in the Healthcare vertical. It will continue to address the gaps in the US BNPL market and look to leverage on the opportunities in the near term.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  As per a recent update, Credit Suisse Holdings (Australia) Limited (on behalf of Credit Suisse Group AG and its affiliates) became a substantial shareholder of OPY, with a voting power of 5.18%. Moreover, one of its Directors, Mr. Patrick Tuttle who hold an indirect interest in the company, has acquired 24,631 fully paid ordinary shares via Participation in Placement announced to the market on 31 March 2021 and approved by shareholders at a General Meeting of the Company held on 10 May 2021.  As per ASX, the stock of OPY is trading below its average 52-weeks’ levels of $1.530-$4.980. The stock of OPY gave a negative return of ~19.48% in the past one month and a negative return of ~0.94% in the past one week. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade a slight discount to its peer median EV/Sales (NTM trading multiple), considering the continued losses for the firm and an increase in the debt-to-equity ratio. For this purpose, we have taken peers such as Humm Group Ltd (ASX: HUM), Money3 Corp Ltd (ASX: MNY), to name a few. Considering the expected upside in valuation and current trading levels, increase in active customers and merchants, decent rise in transaction value and a successful fund raise to pursue growth opportunities, we recommend a ‘Buy’ rating on the stock at the current market price of $1.57, down by 1.876% as on June 08, 2021.

OPY Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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