Afterpay share price opens at $80, Bell Potter raises PT to $92.5

Afterpay share price continues to defy the sceptics

Buy now pay later juggernaut Afterpay (APT) saw its share price hit a fresh all-time high on Thursday – opening up ~7% at $80.7 per share – after the company upgraded its full-year net transaction margins and earnings guidance, on Wednesday, after the market close.

Though Afterpay often trades with elevated levels of volatility, the stock has continued to push higher year-to-date, finishing out Wednesday's session at $74.90 per share – on an implied market capitalisation of close to $21 billion.

Since January the APT share price has risen over 140%.

While Afterpay opened at $80.7 per share off the back of this guidance upgrade – one wonders just how far the stock can still run – with expectations around the company’s growth prospects sitting at all-time highs.

For reference, the company is set to report its full-year (FY20) results to the market next Thursday, 27 August.

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The upgrade at a glance

Centrally, as part of yesterday’s Update regarding FY20, management reported that they now expected net transaction losses (NTL) to come in lower for the full-year, while earnings (EBITDA) were expected to come in significantly higher.

Afterpay now expects its FY20 Net Transaction Losses NTL - represented as a percentage of underlying sales – to hit 0.38% for fiscal 2020, representing an improvement of 17 basis points on prior guidance.

The company previously guided for a FY20 NTL of 0.55%.

Management said this improvement was driven by 'higher than anticipated collections of instalment payments relating to the 30 June 2020 receivables balance that have occurred post 30 June 2020.'

The positive consequence of this: lower provisions and lower losses for the full-year. More specifically, as a result of these efficiencies, Afterpay now expects its net transaction margins – expressed as a percentage of underlying sales (ex-one offs) – to come in at ~2.25%, previously guided at ~2%.

In more concrete terms, and as a result of the above, Afterpay now expects to report full-year earnings (EBITDA) of around $44 million, some 96% ahead of its previously guided $20-25 million range.

In spite of that steep upwards revision, APT remains expensive by historical standards, at EBITDA guidance of $44 million – Afterpay’s market capitalisation of $21 billion implies a heady multiple.

As Warren Buffett famously said:

‘Price is what you pay; value is what you get.’

Other bits and pieces

Despite concerns about a stretched valuation and a monumental YTD share price run-up – Afterpay remains overwhelmingly liked by sell-side analysts, commanding an Overweight rating on average, according to the Wall Street Journal.

On a more granular level, APT has 5 Buy ratings, 6 Hold ratings and 1 Sell rating.

Bell Potter retained their Buy rating and raised their price target on APT to $92.50 per share off the back of this guidance upgrade, with this guidance ahead of the broker's previous FY20 EBITDA estimates.

Bell's analysts said 'Although this higher Net Transaction Margin can not necessarily be extrapolated out. It is, nonetheless, a material upgrade to EBITDA and bodes well for the overall strength of the product and its approval process.'