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Morgan Stanley's $242 Afterpay bull-case; Sezzle poised to raise new capital

As Sezzle plans a ‘material’ capital raise, we examine Morgan Stanley’s revised outlook on Afterpay.

APT & SZL Source: Bloomberg

Afterpay share price continues to trade higher

Afterpay (APT) continues to break all-time highs, closing out Thursday’s session up 11.4% at $73.58 per share. At those levels, APT has an implied market capitalisation close to $18.0 billion.

This comes after Morgan Stanley significantly changed their view on the company in the wake of its recent trading update and $800 million capital raise. Here, the investment bank, which previously had an Equal-weight rating and $36.00 price target on the stock – upgraded Afterpay to Outperform and slapped a $101.00 per share price target on the company.

Overall, the investment bank said that Afterpay had defied expectations, with the company’s recent business update exhibiting stronger trends that MS analysts had anticipated. MS was also impressed by Afterpay’s ‘credit quality control’ and its diversification away from the fashion segment, which APT has historically prioritised.

From a valuation perspective Morgan Stanley’s $101 price target implies a FY21 price-to-sales multiple of 31x – a multiple that MS analysts believes is warranted, though ‘challenging’, given APT’s globally-focused growth outlook.

Mind you, should a confluence of positive conditions be met, Morgan Stanley believes that Afterpay could trade as high as $242.80 per share – implying a staggering FY21 price-to-sales multiple of 75x – under the investment bank’s ‘bull-case’ scenario. The investment bank summarised the conditions required to get to that lofty price target as follows:

‘Our bull case captures an Australian global success story. Uptake in Canada takes off rapidly, US re-opens translate to rapid uptake in in-store adoption and strong omnichannel penetration. APT's expansion into other lucrative markets, i.e., Asia comes to fruition and valuable e-commerce partnerships are established in the US.’

Morgan Stanley’s bear-case, by comparison, values APT at just $25.39 per share.

Sezzle sets its sights on ‘material’ raise

Elsewhere in the buy now pay later sector, on Thursday Sezzle (SZL) requested its stock be put in a trading halt pending news of a ‘material’ capital raise.

Before being put into that trading halt, which came into effect a little after 1PM (AEDT) – investors bid the stock some 40% higher, to $6.95 per share. At its intraday peak, Sezzle traded close to $8 per share.

According to the Australian Financial review, Sezzle is ‘considering an $80 million raising with the help of stockbroker Ord Minnett,’ in a move aimed at accelerating the company’s growth trajectory.

As we reported earlier this week, Sezzle capped off the second quarter in stellar fashion, recording a record set results which saw underlying merchant sales (UMS) rise 349% to US$188 million, merchant fees climb 397.1% to US$10.6 million; while active customers more than tripled during the quarter, reaching 1.48 million.

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