Openpay Group Ltd

Company Overview: Openpay Group Ltd (ASX: OPY) operates in the ‘Buy now pay later’ space and has a presence across diverse sectors like Automotive, Healthcare, Home Improvement, Education, to name a few. The company provides payment solutions and services to merchants and their customers in the geography of Australia, New Zealand and the United Kingdom. It also provides its services to the United States under the brand name Opy.

OPY Details

Uptick in TTV Driven by Demand Across Diverse Sectors: The company has delivered decent growth rates in its first overseas market of the United Kingdom in FY21. Further growth is expected in the region with the anticipated acquisition of Payment Assist, which will project OPY as one of the leading BNPL providers in the UK Automotive space.

Inking of Deal with Kogan.com:

• The Group has recently updated that it has signed an agreement to provide its OpyPro B2B platform to on-line retailer, Kogan.com.
• It will integrate Kogan's e-commerce systems and deliver a superior buying and transaction experience for its business customers. OpyPro’s funding partner Lumi will provide credit to Kogan’s business customers.

Key Agreement with Nissan:

• The company has entered into a strategic partnership agreement with Nissan Australia, which comprises of marketing campaigns in order to drive new customer growth across Nissan’s existing customer base.
• Nissan Australia will look to incorporate Openpay’s solutions across its dealership network and expand the consumer payment offerings among its 188 network dealerships.

FY21 Performance Overview:

OPY reported decent top-line performance in FY21 with significant increase in TTV levels.

• TTV grew by ~77% to ~$339 million in FY21, compared to ~$193 million in FY20. The growth has been driven by decent performance from the BNPS business unit and is in line with OPY’s domestic and international expansion activities.
• There has been an increase of ~44% in the total revenue to $26.3 million in FY21, compared to $18.3 million in FY20.
• Operating expenses increased by ~68% to $81.4 million in FY21, reflecting investments into the growth phase of the company.
• Net Receivables grew by ~26% to $58.5 million as of 30 June 2021, compared to $46.3 million as of 30 June 2020.
• It ended the period with a comfortable liquidity position with a cash position of $52.1 million as of 30 June 2021 and undrawn AU debt of $70 million.

 Cash Position (Source: Analysis by Kalkine Group)

Extension of Funding Facilities:

On 15 September 2021, the company has entered into a new consolidated facility with its existing financier, Global Credit Investments. The existing Australian receivables funding facilities has been extended into a new $65 million facility and is expected to provide long-term funding support to the company’s business in Australia. The agreement has an extended maturity date of 31 January 2024.

Top 10 Shareholders: The top 10 shareholders together form around 48.73% 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:  ROE of the company stood at negative 93.5% in FY21, compared to negative 104.4% in FY20. Current ratio stood at 3.47x in FY21. It ended the period with a total debt of $49.8 million as of 30 June 2021.  

Growth & Leverage Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Regulatory Risks: It is exposed to regulatory risks and any adverse change in regulations might impact the company’s cost of compliance.
• Stiff Competition: OPY’s line of business is exposed to stiff competition from other players in the sector who might be able to deliver a comparatively superior solution to its clients.
• Funding Risk: The success of the Group’s business depends on its ability to source funds at favourable rates. Any challenge on this aspect might impact the operations of the company.

Outlook: The company has continued its growth momentum in FY22 and reported optimistic trends across most of the key metrics in July 2021. There has been growth in Active Merchants & Active Customers by ~77% and ~64%, respectively, as of July 2021 when compared to the pcp period. TTV also reflected an increase of ~50% to $35.9 million in July 2021, compared to July 2020. Going forward, the Group will look to maintain high margin verticals and target the retail segment in order to accelerate its path to profitability.  

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 ASX, the stock of OPY is trading below its average 52-weeks’ levels of $1.110-$3.570. The stock of OPY gave a negative return of ~44.39% in the past six months and a positive return of ~8.50% in the past one week. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median, considering the considering the volatility of margin performance due to exposure to multiple sectors, stiff competition, etc. For the purpose of valuation, few peers like Humm Group Ltd (ASX: HUM), Sezzle Inc (ASX: SZL), Laybuy Holdings Ltd (ASX: LBY) have been considered. Considering the expected upside in valuation & current trading levels, increase in TTV & revenue, growth in merchants & customers, agreement with Nissan & Kogan and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.33, (as on 28 September 2021, 10:08 AM (GMT+10), Sydney, Eastern Australia).

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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