Zip share price forecast: UBS ups PT by 51%, lowers rating to Neutral
We examine why UBS significantly raised their share price target on Zip, while at the same time lowering their rating from Buy to Neutral.
Zip share price continues to trend higher
Zip's (Z1P) QuadPay acquisition appears to be one of transformational significance for the fast-growing company. Indeed, as a combined group, Zip (inclusive of QuadPay) will have direct exposure to a significantly larger retail market, see its total transaction value (TTV) climb to ~$3.0 billion, its annualised revenue jump to ~$250 million, and its customer base balloon out to 3.5 million.
On top of that Zip announced it would be raising up to $200 million in capital through the issuance of convertible notes and warrants. The deal, in combination with the acquisition is ultimately a complex one, but one that the market received favourably when first announced.
Specifically, when this news broke, the Zip share price was bid 38% higher on the day of the announcement and 22% on the following day. Overall, the Zip share price has more than doubled in the last month, trading at $6.03 per share (+6.91%) as of 11:30am.
The UBS view
Bold acquisition or not – UBS today revealed that while they had increased their price target on the fast-growing company by 51%, to $5.60 per share; they had downgraded their rating on the stock, from Buy to Neutral, based on the strong share price rally the company witnessed in the wake of the QuadPay announcement.
Mind you, though UBS has lowered its rating, overall it was noted that the investment bank’s analysts were ‘positive on the deal and think Zip has a credible strategy to grow Quadpay.’
‘The Quadpay acquisition is transformative for Zip and, combined with Zip's UK expansion plans and South African exposure (PayFlex, 25% stake), Zip's international opportunity is significantly larger than ANZ,’ it was also noted.
In saying that, UBS had a number of reservations about the acquisition, including the ‘true’ dilutive impact of this above mentioned complex deal. On that front, it was noted that:
‘Our base case assumes a +50% increase in Zip's share count over time as a result of the Quadpay acquisition, management earn-outs, employee options and dilution from the Convertible and Warrants.’
Elsewhere, ambiguity around QaudPay's economics, whether QuadPay's revenue and net transaction margins (NTMs) could be scaled effectively, and intense competition in the US buy now pay later space, were also concerns that UBS analysts flagged.
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