What 2 top brokers currently think of the Afterpay share price

With the issues flagged by AUSTRAC earlier this year looking to be almost behind Afterpay (ASX: APT), we examine what two of Australia’s top brokers are currently saying about the company.

Afterpay share price trades flat

The Afterpay (ASX: APT) share price was subdued today – dropping almost a full percentage point a little after noon – following the release of yesterday’s AUSTRAC requested audit report summary to the market.

Speaking to the potential consequences of the AUSTRAC situation and according to Nathan Lynch, Manager of Regulatory Intelligence at Reuters:

‘One possible scenario is that AUSTRAC may decide to fine Afterpay, or litigate, in the knowledge that Afterpay may well lodge a claim against its own legal advisers.’

The suggestion that Afterpay would be fined by AUSTRAC has been a question long-pondered by the market: the specifics of such a suggestion were always more important than the suggestion itself however. That is, how significant could a potential fine be?

It seems the upbeat independent auditor's report summary has implied that it may not be that material, though, at least that's what Morgans thinks. Indeed, no monetary penalties – just recommendations for Afterpay to implement – were flagged in the report summary.

With this in mind, two of Australia’s top brokers: Morgan Stanley and Morgans took today as a chance to reiterate their positive views on the company.

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Morgan Stanley remains overweight

A lack of any monetary penalties being flagged was one of the core reasons that Morgan Stanley today remained overweight on APT and reiterated their $44.00 share price target on the company.

Not only that, but Morgan Stanley pointed out that the Final Audit Report Summary does not recommend any significant operational changes to Afterpay; nor did the external auditor discover anything drastically negative about the actions of Afterpay’s Board during his investigation.

Afterpay, says the external auditor, has a strong compliance culture overall.

Indeed, Morgan Stanley itself pointed out that not only was Afterpay’s ‘non-compliance historical’ and caused by incorrect legal advice, but that the company currently has an appropriate AML/CTF program in place.

Morgans lifts their price target

While Morgan Stanley took today as a chance to reiterate an already bullish price target, Morgans used it as a chance to bump theirs up.

Here, Morgans pushed their 12-month price target up to $35.82 on Afterpay and maintained their add recommendation.

Like Morgan Stanley, Morgans noted that while Afterpay committed historical compliance breaches in its infancy, its AML/CTF systems currently are – in the words of the independent auditor – ‘effective, efficient and intelligent.’

On the front of a potential fine, Morgans noted that while it remains a possibility, relative to APT’s significant $8bn market capitalisation – it looks ‘immaterial’.

Even so, given the given the historical breaches, Afterpay will still likely have to rely on leniency from AUSTRAC.

Indeed, Morgans used the $45m fine AUSTRAC imposed on Tabcorp in 2017 as the upper-benchmark fine possibility that APT could face.

In saying that, Morgans ranks a fine even of that magnitude as immaterial to Afterpay’s long-term prospects.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research 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.

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