Afterpay shares surge 14.3% on broker upgrade and AUSTRAC update

Afterpay price action at a glance

The Afterpay (ASX: APT) share price rose as much as 14.3% during today's morning session, after Goldman Sachs released a bullish note on the fast-growing company.

This report coincided with Afterpay issuing a brief market update concerning the progress made with the ongoing AUSTRAC investigation.

As of 11:58 AEST, Afterpay shares traded around the A$36.32 mark.

The AUSTRAC update in focus

This morning Afterpay advised that the ‘confidential interim report of external auditor Mr Neil Jeans has now been provided to AUSTRAC.’

Importantly, investors should realise that this interim report:

'Does not provide any recommendations, which will be left to the final report.'

Afterpay further pointed out that Mr Jeans is currently working towards completing:

'The assessment of, and test implement and compliance with, the various AML/ CTF Programs in place during and after the notice period.’

This update comes after AUSTRAC just recently ordered the global payments behemoth PayPal to undertake an audit of its own – in relation to concerns over child exploitation.

Afterpay share price gets another bump

Though the ultimate outcome of the AUSTRAC investigation remains uncertain, it hasn’t stopped investment banks from taking a bullish stance on Afterpay’s future prospects.

Citing a A$1.0 trillion market opportunity, Goldman Sachs today upgraded Afterpay from neutral to buy, added the stock to their Australian conviction list, and hit the company with a 12-month share price target of A$42.90.

Overall, Goldman has been impressed with just how strongly Afterpay’s buy now pay later offering has resonated with users. That is, how ‘sticky’ the product has been.

Early US transaction trends and historical ANZ consumer behaviour – which in recent times has seen users making more than 20 transactions per year with the Afterpay platform (after year three) – has led Goldman to revise its ‘frequency of use’ assumptions upwards, in both the US and UK markets.

This forms an important point for a number of reasons, as a strong repeat user base; argues Goldman, has the secondary impact of driving bad debts lower and reducing payment recovery costs.

Moreover, and based on this idea of an increased frequency thesis, Goldman has today joined a seemingly growing rank of market commentators and analysts that believe Afterpay will exceed its own underlying sales (GMV) target of A$20 billion++ in FY22.

For perspective, Citibank’s bull case sees Afterpay’s underlying sales hitting A$35 billion in FY22E; Watermark Funds Management estimates a slightly lower A$34 billion in FY22; while Goldman Sachs has today posited that Afterpay could reach A$29.2 billion in underlying sales in FY22E – a figure 46% above Afterpay’s own estimates.

As bearish commentary and negative media attention grows quiet, it is hardly surprising that Afterpay’s share price is now up around 51% in the last month alone.

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