Bell Potter

Bell Potter

Afterpay Touch Group (APT) Approaching two million users Recommendation Buy (unchanged) Price $5.60 Target (12 months) $10.00 (previously $9.70) Analyst Lafitani Sotiriou 613 9235 1668 Authorisation Jonathan Snape 613 9235 1601 GICS Sector Diversified Financials Expected Return Capital growth 78.6% Dividend yield 0.0% Total expected return 78.6% Company Data & Ratios Enterprise value $1.4bn Market cap $1.2bn Issued capital 217.4m Free float 74% Avg. daily val. (52wk) $4.6m 12 month price range $2.65 - $8.16 Price (A$) 7.68 6.35 Absolute (%) -27.08 -11.81 Rel market (%) -25.13 -7.73 ~100,000 users being added each month Afterpay’s rapid growth continues, with a further 300,000 users added during the March quarter, bringing the total to over 1.8m. At this rate Afterpay should surpass two million users next month, at which point the company is set to confirm the launch date into the US market. The rapid growth rate in Australia, coupled with the pending launch in the US provide key reasons to Buy APT, as we anticipate robust multi-year growth to eventuate. Following the March quarter we have a better understanding of the seasonal impacts (as explored on page two of this report) and overall trajectory of the business, resulting in a net-upgrade to our estimates of between 2 – 5% over the forward period. Quarterly highlights  Customer numbers at 1.8m (in line with our estimate);  Net-margin largely stable with 1H18, which was ~2.35% (vs 2.10% estimate);  March Transaction Values at $530m vs $610m estimate (see page two for further explanation to do with seasonal impacts);  Number of merchants up 21.8% from 11,500 to 14,000 over the quarter;  APT confirmed US expansion with update due next month; and  APT provided further detail relating to product design and regulatory items. Earnings revisions Following APT’s March quarter update, we have upgraded our underlying EPS by 2.5%, 4.9% and 3.3% for FY18, FY19 and FY20 respectively. The earnings revision is driven by improved margin assumptions and higher June quarter seasons sale estimates, offset to a degree by lower March quarter sales. Following the changes our revised Price Target is $10.00 per share (previously $9.70), with our Buy recommendation remaining unchanged. Absolute Price Earnings Forecast Year end June 30 2017° 2018e 2019e 2020e Sales revenue ($m) 22.9 114.8 197.0 279.0 EBITDA (Adjusted) (A$m) 3.9 27.7 49.4 75.7 NPAT (reported) (A$m) -9.6 6.8 27.9 46.3 NPAT (adjusted) (A$m) 0.9 13.4 27.9 46.3 EPS (adjusted and fully diluted) (cps) 0.5 6.0 1