Credit Suisse values Afterpay at $124, RBA issues no-surcharge update

We look at the Reserve Bank of Australia's update into its review of no-surcharging in the BNPL sector, and briefly examine Credit Suisse’s starter coverage on Afterpay.

The Reserve Bank of Australia (RBA) earlier this year launched a review into the no-surcharging rules around BNPL companies.

At the time, companies such as Afterpay were critical of potential surcharging reform, arguing that ‘on a net basis, merchants gain more from Afterpay than what they pay to Afterpay.’

Not only that, but the company contended that reform in this area would harm innovation, saying:

‘Surcharging reform would risk undermining important innovation and benefits for consumers, merchants and the wider economy, and would not achieve the public policy intent of the regulatory framework for payment systems.’

Despite those potential regulatory issues, Afterpay has seen its share price more than triple in 2020.

RBA provides a preliminary view

In a speech given at AusPayNet's annual summit, RBA Governor Philip Lowe outlined a preliminary view that had be reached on the central bank’s review into Australia’s no-surcharging rules, saying:

‘The Board's preliminary view is that the BNPL operators in Australia have not yet reached the point where it is clear that the costs arising from the no-surcharge rule outweigh the potential benefits in terms of innovation.’

Citing public interest, Mr Lowe finished by saying that: ‘the Board is unlikely to conclude that the BNPL operators should be required to remove their no-surcharge rules right now.’

Despite leaving the door open for regulatory intervention further down the line, highlighting that it may be appropriate to apply it to some BNPL agreements in the future, at present, it was noted, that BNPL services account for only a fraction of total consumer payments.

Credit Suisse initiates with bullish price target

In other news, Swiss banking giant Credit Suisse today initiated coverage on Afterpay, assigning the stock an Outperform rating and lofty $124 price target.

Looking at the central aspect of this bull thesis, Credit Suisse analysts said:

‘We expect APT to gain an increased share of total payments given its strong value proposition to customers and merchants which extends beyond purely being a payment provider (we also view it as a low‐cost marketing service).’

‘As a leading player in a new industry and with a strong customer following from a desirable demographic, APT offers not only strong growth but future optionality,’ the investment bank added.

Credit Suisse expects Afterpay to notch up FY21 revenues of $928 million, earnings (EBITDA) of $159 million, and net income of $31 million.

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