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APT

Afterpay Ltd – Trading update, $800 million capital raising and co-founder sell down

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Afterpay Ltd (ASX: APT) is an Australian financial technology company operating in the United States, United Kingdom, New Zealand and Australia. Afterpay has a market capitalisation of A$18.3 billion.

 

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What is Afterpay’s trading update?

Afterpay announced today underlying sales of $11.1 billion in FY20, more than doubling the prior corresponding period (pcp) (up 112%). Underlying sales in the June quarter 2020 was $3.8 billion, 127% above the June quarter 2019. The June quarter 2020 sales performance represents Afterpay’s highest quarterly performance ever, reflecting the accelerating shift to e-commerce spending since the impacts of COVID-19 emerged globally.

FY20 underlying sales in Australia and New Zealand, Afterpay’s most mature market, delivered strong growth (up 52% on FY19). Online sales increased by 46% in FY20 compared to FY19, while in-store volumes grew by 81%. In-store sales growth remained strong for FY20 despite COVID-19 related impacts in H2 FY20. The US continued to grow underlying sales substantially (up 330% on pcp), driven by the introduction of new global retailers to the platform and an acceleration of e-commerce spending. Operations commenced in the United Kingdom during FY20 where $0.6 billion sales were achieved.

Other key points from the trading update is that merchant revenue margins for FY20 are expected to be in line with or better than H1FY20 and FY19 and EBITDA (excluding significant items) for FY20 is expected to be between $20-25 million.

What is Afterpay’s capital raising?

Afterpay also announced today a capital raising of approximately $800 million that includes a fully underwritten institutional placement to raise $650 million, followed by a non-underwritten Share Purchase Plan that aims to raise approximately $150 million. Pricing will be determined via an institutional bookbuild, with an underwritten floor price of $61.75 per new share. The underwritten floor price represents a 9.2% discount to the closing price on 6 July 2020.This capital raising is on the back of the very strong rally in Aferpay’s share price from low of $8.01 in March 2020 to $68.00 on 6 July 2020.

Afterpay’s management indicated that the additional capital will be used to invest in growing underlying sales and prioritising global expansion in order to maximise shareholder value in the longer term. This includes investing in existing regions to maintain and grow Afterpay’s position in each market and expand its customer offerings, expediting Afterpay’s expansion in to new markets (such as Canada), fortifying Afterpay’s balance sheet to underpin funding of rapid growth in underlying sales and creating capacity to execute on potential M&A opportunities that could present themselves in the short to medium term.

How much do the co-founders of Afterpay sell-down?

Concurrent with the institutional placement, Afterpay co-founders, Anthony Eisen and Nicholas Molnar have each agreed to sell 2.05 million shares (or approximately $126 million each) representing 10% of their shareholding in Afterpay. This sell-down represents approximately 1.5% of total shares outstanding in Afterpay.

Mr Eisen and Mr Molnar are each expected to remain Afterpay’s largest shareholders, with a relevant interest in approximately 18.4 million shares each. Mr Eisen and Mr Molnar remain committed to Afterpay and have each confirmed that they will not sell any further shares until after the Company’s 2020 AGM.

What is the market reaction?

Afterpay is in trading halt today (Tuesday 7 July 2020) pending completion of the institutional component of the capital raising. The results of the capital raising are expected to be announced on Wednesday 8 July 2020 prior to the market opening.

 


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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