From Jonathan Bayes, Investment Consultant, Bentleys Wealth Advisors.
For the fourth week in a row, the ASX200 has paused at or around 6250-6300 mark.
But who wants to talk about the boring old index when we can marvel at Afterpay’s (APT) stunning +43% rise this week!
Afterpay (APT) – the next Paypal (PYPL)? The next CSL (CSL)?
Since our call in early April, APT has risen +150% and the brokers are arguably getting more positive on the share the higher it seems to go.
Whilst much will be made of APT’s success in the weekend papers, allow me to throw a couple of notable facts about the APT business for you to take in.
Firstly, APT believe that they process over 10% of all physical online retail sales in Australia currently, and over 10% of the population here have used the platform.
16,500 retailers and 2.2m+ customers use the system, and this is up from 6,000 and 800,000 only 12 months ago. Remember too that is basically all Australia alone, with precious little in the numbers yet for the US operation which launched in May.
APT are now seeking to penetrate not only the ‘in-store’ market, which now comprise around 12% of all sales as at the last quarter, but also service transactions (travel, healthcare, beauty etc) and small-medium business retailers not aligned with a national franchise or brand.
In 2018, APT will make EBITDA (operating cashflows) of $33-34m or around 1.5% on each sale.
Increasingly, Afterpay is becoming a ‘verb’, and the term as ubiquitous as Uber.
But this is only Australia.
The US market potential could be 20x this number depending on how you define the market opportunity.
As we flagged several months ago, APT launched in May with Urban Outfitters and since then has been slowly ramping up activity, although the company note that in June, its first full month of operation, the platform processed $11m in sales – a figure that took them 16 months to reach here in Australia.
So what is it all worth?
Bells today posted a $21 target price on APT, up from $10, but in truth who really knows how successful APT could be given it has yet to launch in Europe and Asia, and its American foray is still nascent. However, it seems very fair to think that over the coming 12 months, the shares will continue higher, perhaps significantly so.
We have trimmed down some of our holding again this week, simply for prudence, but retain a significant position in our Australian equity model portfolios, and would buy back stock sold if the shares were to consolidate lower at any point.
However, all in all, we are thrilled to see that what seemed like a throwaway line only three months back that this stock could be worth $20, is now not only possible, but highly likely.
A Quick Economic Update – China and Australia
The main focus this week continues to be China and trade. Chinese Money supply growth for June was reported and fell again to its lowest level on record, rising by +8%. Chinese GDP rose by +6.7% YoY.
Perhaps more interesting however, was continued weakness in the Chinese currency, with the RMB falling to its weakest level in 12 months and taking its loss against the US dollar to 8% in under 4 months.
The weakness is surely deliberate and a direct response from China aimed at the United States and Trump’s tariff agenda.
It is hard to see this as positive for the global economy. Proxies for global growth such as copper and Asian share-markets continue to trade weakly.
In Australia, the Westpac Leading Economic Index for June fell below trend for the first time since September 2017, indicating a slowing in Australia’s economic growth is afoot. The reading suggests a slowing in growth to 2.5% and below both the 2.75% trend rate of growth, and the March quarter annual outcome of 3.1%.
The driver of the softness, as mentioned here on multiple occasions in recent months, is construction, and the ongoing ‘slow roll’ of tighter lending standards impacting activity post the banking Royal Commission.
Spring real estate action will be really poor, and Australian bank share prices aren’t remotely ripe for buying just yet.
I’ll keep it simple this week. Have a great week.
Friday 10am values
| Index | Change | % | |
| All Ordinaries | 6355 | +5 | +0.1% |
| S&P / ASX 200 | 6262 | -6 | -0.1% |
| Property Trust Index | 1421 | -16 | -1.1% |
| Utilities Index | 7948 | -60 | -0.7% |
| Financials Index | 6353 | +8 | +0.1% |
| Materials Index | 12146 | -28 | -0.2% |
| Energy Index | 11571 | -379 | -3.2% |
Thursday Closing Values
| Index | Change | % | |
| U.S. S&P 500 | 2804 | +6 | +0.2% |
| London’s FTSE | 7684 | +33 | +0.4% |
| Japan’s Nikkei | 22764 | +576 | +2.6% |
| Hang Seng | 28010 | -471 | -1.7% |
| China’s Shanghai | 2772 | -66 | -2.3% |
Key Dates: Australian Companies
| Mon 16th July | N/A
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| Tue 17th July | N/A
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| Wed 18th July | N/A
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| Thu 19th July | N/A
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| Fri 20th July | N/A
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20th July 2018, 1230pm
For more information on the above please contact Bentleys Wealth Advisors directly or on 02 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
Robert Flynn
