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Could Afterpay’s share price rise even higher in the next 12 months?

In the wake of Afterpay’s recent business update we take a look at how some of Australia’s top brokers currently rate the stock.

The short answer to the question posed in the headline: many brokers seem to think so.

Yet in the wake of Afterpay’s latest business update – which revealed that many of the company’s key operational metrics had risen substantially – a number of top brokers did reiterate or upgrade their price targets.

The knee-jerk reaction from the market was somewhat different, mind you.

As we previously wrote: on Wednesday, when Afterpay (ASX: APT) released its latest business update to the market, the stock first rose before crashing lower. Come yesterday and a fresh-wave of broker reports and Afterpay’s share price was on a tear: rising 7.49% as the stock closed out the session at $31.57. Today, the stock traded flat.

Matt Levine, a Bloomberg columnist last week mused that sell-side reports were produced ‘because your clients already own them [the stocks being covered] and want to be congratulated on their acumen.’

True or not, the pull of broker research is undeniable. With that in mind, we look at why some of Australia’s top sell-side analysts think Afterpay (ASX: APT) could power higher (and lower) in the next 12-months.

Morgan Stanley says overweight

One of the most bullish brokers on Afterpay — Morgan Stanley – has taken the chance to reiterate an overweight rating and a lofty share price target of $44.00 on the fast-growing BNPL company.

Morgan Stanley was centrally impressed by Afterpay’s strong adoption from merchants, as well as above expected customer growth and stronger transaction margins.

In saying that, the investment bank also flagged that were such metrics to slow, it would pose a key risk to their ambitious share price target.

Afterpay share price: Citibank says ‘buy’

Like Morgan Stanley, Citibank yesterday maintained their buy rating, was impressed by Afterpay’s customer growth and upgraded their earnings forecasts for FY20 to FY22. Though Citi believes US is currently tracking to expectations; in terms of growth, it is Australia (APT's more mature market) that was actually tracking ahead of expectations.

Citibank’s price target of $31.10 is a shade below Afterpay’s current share price of $31.76.

UBS sees downside, says 'sell'

If Morgan Stanley and Citi are the bulls amongst the bunch, UBS is decisively in the bear camp; a sell rating and a share price target of $17.60 (slightly upgrade from a previous $17.25 price target) tells you that much.

Interestingly, UBS’s language was rather positive, with the investment bank noting that Afterpay has experienced a ‘strong start’ in the UK and that US customer growth patterns were tracking ahead of their previous estimates.

UBS also cited the planned $200m capital raise with Coatue Management as a key reason for the slight price target upgrade. Positives aside, UBS believes competition and regulation pose a key threat to Afterpay’s future success: ergo the sell rating.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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