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Goldmans uber bullish on Afterpay, Bingo sinks

James Gerrish

Market Matters

The market opened on the back foot this morning with SPI Futures off ~70pts thanks to weakness overseas, however as the Aussie Dollar tracked lower intra-day, our market found some buyers pushing the index back up above 6700 by mid-afternoon before some late selling bubbled to the surface – the market lost -20pts in the last hour – this has been a fairly typical scenario of late and it’s a sign of underlying weakness.

Afterpay (APT) a big mover adding +13.28%, Harry covers this below while on the downside we saw a sell-off in Bingo Industries (BIN) after they announced the sale of their Banksmeadow facility, stock down -4.44% on the session.

Overall, the ASX 200 lost -38pts today or -0.57% to 6710, Dow Futures are trading up +24pts/+0.09%.

ASX 200 Chart

ASX 200 Chart


Bingo (BIN) -4.44%: Closed down today after they announced the sale of their Banksmeadow recycling facility to private equity for $50m. The stock closed at $2.15 today although the low will print $2 thanks to 1000 shares that traded through ChiX at 4.03pm - hence not relevant. We like BIN as a business however I’m concerned about their November AGM. They didn’t provide FY20 guidance at their FY19 results saying they’ll do this at the AGM on the 13th November. If the business was firing, I doubt they’d wait till the AGM to outline forecasts. That’s the key date for the stock – we’ll likely remain patient till then, however they also present at a Morgan’s conference on the 9th October then a UBS conference post the AGM on the 18th November.

If I get my crystal ball out, the window between their AGM , where they’ll likely guide below expectations and the UBS presentation where they’ll reassure the market on the long term story seems the window to buy the stock.

Bingo (BIN) Chart

Afterpay (APT) +13.31%; A double whammy of good news has rocketed APT to new heights today. The first kick came from the AUSTRAC investigation where external auditors were brought in to assess the systems Afterpay had in place to prevent money laundering and terror financing. At the halfway point the audit had yet to uncover any instances of the platform being used for these outcomes. Afterpay is not out of the woods just yet however, with recommendations being held until the final report. The second kick comes from Goldman Sachs which drastically increased its target for Afterpay and put the stock into their conviction buy bucket. The report from the broker is extremely positive, and has revenue increase more than 4 fold in the three years from FY19 through to FY22 to $1.39bn on the assumption that Afterpay significantly beats their own base Gross Market Volume (GMV) by almost 50%.

The bulk of the Goldman’s 58% increase to the target price stems from a continuation of the growth in frequency of use for APT’s customers, as well as significant penetration into the US and UK markets which, when combined with Australian retail presents a $1tr market for the Buy Now Pay Later space. The broker has also thrown an M&A premium on the stock, with the analyst suggesting that an EV/EBITDA multiple of nearly 40x in FY22, and on their estimates suggests the potential for a $47/share takeover bid. Goldman’s target price of $42.90 is 10% above the next highest in the market, while Morningstar are the only broker to have a sell on the stock with a $22 price target. The AUSTRAC investigation will likely be insignificant in the medium term for APT even if some recommendations do come through. The GS note has some ‘blue sky’ assumptions in the model which seem farfetched, but not out of reach given what has been seen in the space already.

We’ve missed this boat for now and from a simple risk / reward perspective, we can’t buy it here.

AfterPay Touch (APT) Chart


· APT AU: Afterpay Touch Upgraded to Buy at Goldman; PT A$42.90

· WHC AU: Whitehaven Upgraded to Buy at Morningstar

· XRO AU: Xero Rated New Buy at Jefferies; PT A$75.70

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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