Goldman Sachs 9/7/19 : Downgraded from buy to NEUTRAL
Target Price $27.15
APT’s execution in the US continues to look strong. In this note we consider emerging competition (incl. Visa and Klarna) and discuss why innovation will be key for APT to succeed in the medium term. We incorporate the following changes to our forecasts: (1) refining estimates for its most recent business update, (2) its capital raising, and (3) the introduction of what are effectively outside equity interests (OEI) in the UK and US. We tweak our 12m target price to A$27.15 (from A$27.10), implying upside potential of 1%. We downgrade our rating to Neutral (from Buy, on CL). Since we added APT to the Buy list on 28 June 2018, the stock is +214% vs. the ASX Small Ordinaries +1% during the same period. Since being added to the Conviction List on 24 August 2018, the stock is +46% vs. the ASX Small Ordinaries -1% during the same period.
Key risks
(+) US and UK customer addition run-rates stronger than our forecasts, new geographies entered into, innovation that delivers new revenue streams
(-) APT does not sign enough retailers to achieve our sales and customer addition forecasts, emerging competition impedes APT’s growth, a slowing economy and rising credit defaults.
Earnings and valuation
Our FY20E/FY21E EPS reduce by -12%/-16% to reflect the above mentioned changes to our forecasts. However, our 12m TP increases modestly to A$27.15 (from A$27.10) as peer group multiples have increased as has the peak fwd EV/EBITDA multiple we use for our M&A valuation. Our valuation methodology is unchanged and incorporates a fundamental component – lifetime value (35% weighted) and earnings multiple (35% weighted) – and an M&A valuation (30% weighted).