Zip share price forecast: UBS ups PT by 51%, lowers rating to Neutral
We examine why UBS significantly raised their share price target on Zip, while at the same time lowering their rating from Buy to Neutral.
Zip share price continues to trend higher
Zip's (Z1P) QuadPay acquisition appears to be one of transformational significance for the fast-growing company. Indeed, as a combined group, Zip (inclusive of QuadPay) will have direct exposure to a significantly larger retail market, see its total transaction value (TTV) climb to ~$3.0 billion, its annualised revenue jump to ~$250 million, and its customer base balloon out to 3.5 million.
On top of that Zip announced it would be raising up to $200 million in capital through the issuance of convertible notes and warrants. The deal, in combination with the acquisition is ultimately a complex one, but one that the market received favourably when first announced.
Specifically, when this news broke, the Zip share price was bid 38% higher on the day of the announcement and 22% on the following day. Overall, the Zip share price has more than doubled in the last month, trading at $6.03 per share (+6.91%) as of 11:30am.
The UBS view
Bold acquisition or not – UBS today revealed that while they had increased their price target on the fast-growing company by 51%, to $5.60 per share; they had downgraded their rating on the stock, from Buy to Neutral, based on the strong share price rally the company witnessed in the wake of the QuadPay announcement.
Mind you, though UBS has lowered its rating, overall it was noted that the investment bank’s analysts were ‘positive on the deal and think Zip has a credible strategy to grow Quadpay.’
‘The Quadpay acquisition is transformative for Zip and, combined with Zip's UK expansion plans and South African exposure (PayFlex, 25% stake), Zip's international opportunity is significantly larger than ANZ,’ it was also noted.
In saying that, UBS had a number of reservations about the acquisition, including the ‘true’ dilutive impact of this above mentioned complex deal. On that front, it was noted that:
‘Our base case assumes a +50% increase in Zip's share count over time as a result of the Quadpay acquisition, management earn-outs, employee options and dilution from the Convertible and Warrants.’
Elsewhere, ambiguity around QaudPay's economics, whether QuadPay's revenue and net transaction margins (NTMs) could be scaled effectively, and intense competition in the US buy now pay later space, were also concerns that UBS analysts flagged.
How to trade BNPL stocks
What do you think: are you bullish or bearish on Zip's future prospects? Trade accordingly. For example, you can trade Zip shares and other BNPL stocks – both LONG and SHORT – through IG’s world-class trading platform now.
To buy (long) or sell (short) Zip with CFDs, follow these simple steps:
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.