Is Openpay worth $5.00 per share?

Despite trading at a discount to its peers, Shaw remains bullish on Openpay.

  • The ASX remains the premier exchange for BNPL companies
  • Openpay has its sights set on the US market, and continues to trade at a hefty discount to its peers
  • Shaw values the stock at $5.00, though has a High Risk rating assigned to it
  • Trade BNPL stocks with IG now. Open an account here.

Afterpay’s global success opened the floodgates for a flurry of buy now pay later (BNPL) upstarts to enter the space.

In Australia alone, the laundry list of BNPL companies has grown increasingly convoluted, now starring: Afterpay, Zip, Sezzle, LayBuy, Splitit, Humm (formally Flexi Group), and Openpay. Oh and the Commonwealth Bank of Australia recently announced its own BNPL product – though it wasn’t received spectacularly.

Zooming out, on a global level, Klarna and PayPal are key players in the space, though PayPal is a relatively new entrant.

Despite all this competition, Afterpay remains the distinct leader in Australia and a fierce competitor against its global rivals. The company also generally trades at a premium to its ASX-listed peers. The table below illustrates this valuation discrepancy:

Company

Price-to-sales ratio

Afterpay

45x

Zip

14x

Sezzle

19x

Splitit

30x

Openpay

8.5x

Is that kind of multiple justified? We’ll get to that in a second.

On Wednesday, Openpay held an investor briefing boldly titled ‘accelerating global growth’. The deck was even replete with stylish cartoons, including a person painting over the areas on a globe, which Openpay would presumably would soon be accelerating its growth in. As the company put it, they are ‘Taking it to the next level’.

As part of this deck the company would make the well-worn BNPL points: Namely that credit card growth was declining, while the use of BNPL services was exploding, particularly among the tech savvy Gen Z.

If that wasn’t enough, the sheer scale of the opportunity was reiterated. A key part of APT’s pre-US playbook. Openpay's estimated target market has a total value of about $829 billion. Most of that is made up of big ticket retail purchases, healthcare, and education services. Auto repair and other services also factor in, and so does home improvement.

Openpay is well-funded too, recently securing $67.5 million in new funding, made up of a $37.5 million placement, $25 million in debt and a $5 million share purchase place (SPP).

Funding aside, analysts from Shaw took two key positives from that investor briefing. One, the broker’s analysts flagged the size of the US market as a key positive, which compares favourably to the relatively small Australian and UK market.

Beyond market size, Shaw analysts were impressed by OPY’s product offering, saying:

‘The clearly differentiated offering to its homogenous “pay-in-4” and short term (<2 months) peer offering (much higher ATV, longer 2-24 month tenure, non-Retail vertical focus on Health/Auto/Home, older demographic, etc.).’

With those factors in mind, Shaw reiterated their Buy rating and $5.00 price target on OPY.

Ultimately, when using a FY22 Enterprise Value/ Sales multiple, OPY trades at a 47% hefty discount to its BNPL peer group – which includes Afterpay, Humm, IOU, LayBuy, Splitit, Sezzle, and Zip.

Shaw evidently thinks the market has some course correcting to do.

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