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(ASX: Z1P) | ZIP CO – UPDATED AS PER 1H FY24 and 3QFY24 Results Update

Apr 21, 2024

Sentiment: Bullish

Type of Trade: High Growth

Industry: BNPL

Sector: Financials, Information Technology

Zip is a diversified finance provider, offering consumers finance via a line of credit (via Zip Pay and Zip Money) and instalment finance (via QuadPay and PayFlex); as well as lending to small to midsize enterprises (via Zip Business), Zip fortunes are largely tied to the nascent buy now, pay later, or BNPL, industry.

The company continue to grow its Merchants and customers numbers nevertheless with mediocre financial performance as its FY2022 earning results has reported a staggering $1 billion loss. While several so called analysts have all sorts of opinions on its target price, we still take ZIP as a great trading stock opportunity.

The turnaround started in the second half of FY23 when the company took several initiatives become cash flow positive and EBITDA profitable for the first time.

ZIP is a trading stock that has been extremely profitable for us in many trades.

Zip makes life more affordable by allowing people to pay for purchases over time. But who needs to pay for shopping over time? well, teenagers and low-income families that are financially struggling, thereby posing risks for bad debt itself. Although ZIP aims to target credit card users as a market target.

Having said that, the company has streamlined its client acquisition process and is fully compliant with credit regulations in Australia. Therefore, Zip clients are far more qualified than clients of other similar platforms, thus dramatically reducing the risk of bad debt.

The CEO of Zip highlighted the company’s outstanding performance in the recent half, showcasing consistent strength and successful execution of strategic priorities. Notable achievements included achieving a positive Group cash EBTDA of $30.8 million, driven by record transaction volumes and revenue, improved credit losses, ongoing margin expansion, and cost discipline. Revenue growth stood at 28.9%, with revenue margins expanding by 130 basis points to 8.5%. The Americas business achieved a record TTV of $3.1 billion, up 33.3% versus the previous half, with significant growth driven by increased engagement and strong credit performance. The ANZ business also saw margin expansion, with revenue margins up 320 basis points to 11.0%, demonstrating resilience despite increased interest costs. Additionally, Zip launched a new product, Zip Plus, compliant with regulatory requirements and expected to enhance yields. The company strengthened its balance sheet, securing a new $150.0 million corporate facility and improving cash and liquidity position. Looking ahead, Zip remains focused on driving sustainable growth, innovation, and operational excellence to capitalize on opportunities in core markets and deliver value to customers and merchants.

The goal has been achieved – profitability by 2024

Latest Updates 1H FY24

On December 18, 2023, the company’s successful deleveraging plan and secured corporate funding for the next four years now allow Zip to undertake incentivised conversion and repayment of CVI convertible Notes, expecting a modest positive impact on FY24 cash and liquidity.

Zip secures a new $150 million corporate debt facility, aiming to bolster its balance sheet, simplify its capital structure, and support growth, while refinancing its existing debt of $90 million.

Zip streamlined its capital structure by converting and repaying $40 million in CVI Convertible Notes to zero and achieved continued deleveraging, reducing Senior Convertible Notes’ face value to $85 million from $110.1 million on September 23.

Zip divides its pivoted focus to execute sustainable growth and accelerate profitability and actually delivers it in the 1H FY24.

✅ Group revenue of $430 million (up 28.9% vs 1H23)

✅ Group cash EBTDA of $30.8 million.

✅ Total Transaction Volume (“TTV”) of $5.0b (up 9.6% vs 1H23)

✅ Revenue margin of 8.5% (up 130bps vs 1H23)

✅ Cash gross profit of $176.2m (up 45.9% vs 1H23)

✅ Active customer numbers of 6.3m (up from 6.2m in FY23)

✅ Improved arrears rate and net bad debt.

✅ NPAT (Net profit after tax) for the first time: $73m from 1HFY23 ($205.4 million) loss. (note that Net profit after tax of $73.0m driven by improved cash EBTDA performance and one-off fair value gain on Zip’s Senior Convertible Notes).

✅ Strong Cash position of $303 million up, improved by $81.3m pcp.

Outlook

Macro Economics

Zip actively supports streamlined regulation and has engaged with Treasury regarding potential regulation of BNPL products in Australia, positioning itself for opportunities in what may become a regulated industry. Advocating for Option 2 in Treasury’s November 2022 Options paper, Zip already holds an Australian Credit Licence (ACL) and adheres to modified Responsible Lending Obligations, including credit and affordability checks.

🚩 While during our last analysis, the market was pricing 6 interest rates cuts by FED, now it is a strong likelhood that the market is adjusting its view, to price ZERO interest rates cut or even a interest rates hike, which direct affects growth and tech stocks such as ZIP.

3Q FY24 Results

✅ Zip has delivered another quarter of profitable EBTDA, reinforcing its strong financial position. The company is on track to report its first statutory profit in FY25.

Here are some key metrics:

  • Underlying Group EBTDA: $20.1 million, driven by strong growth in Total Transaction Value (TTV).
  • Transaction Volume: Up by 14.6% compared to the same period last year.
  • Revenue: Increased by 26.6%.
  • Revenue Margin: Improved to 9.1%, compared to 8.3% in the previous quarter. This is a significant achievement for a Buy Now, Pay Later (BNPL) company.
  • Transaction Numbers: Remained flat.
  • Merchants on Zip platforms: Increased to 77,700, up by 9.1% compared to the previous quarter.

The standout performer was Zip Americas, leading the group’s growth with a 43.6% increase in TTV and revenue reaching US$1,058.5 million. Additionally, the monthly cohort loss rate remains low, at approximately 1.3% of TTV.

Zip Australia also delivered a strong performance, with portfolio yield increasing to 17.8% and an excess spread of 6.5% in March, demonstrating the continued resilience of the business model.

Technical Analysis

ZIP, despite having high-risk fundamentals and a seemingly weak business model during monetary tightening in 2022 and 2024, managed to turn things around and make this company profitable in the worst economic period in 12 years.

While many people lost considerable amounts of money with Zip, this stock has proven to be an excellent trading option and has generated significant profits for us and our VIP Members. Once again, the lack of an effective strategy and unfamiliarity with entry points render any stock unsuitable for trading.

We have recently locked in our last trade at 80% with $70K profit! and we are looking forward to our next trade with ZIP.

We’ve been trading ZIP since 2020, and we’ve observed several occasions, even during periods of monetary easing, where ZIP rallied by over 200%, only to experience a correction of more than 40%. The following chart illustrates these corrections. If history repeats, we could see ZIP dropping below $1 soon.

The big question is: when should we buy ZIP again?

According to our BGS 20 Strategy, the ideal entry point for ZIP would be at a technically discounted price. Right now, ZIP is still trading at levels driven by FOMO (Fear of Missing Out) when compared to the long-term moving average. This suggests that the stock might be overvalued, so for now, we’re focusing on other stocks until we see clear signals of a reversal, not just in ZIP, but also in broader growth and tech stocks.

The last market crash was closely tied to monetary tightening, while the recent rally was driven by expectations of monetary easing, with the Federal Reserve potentially cutting interest rates. If this expectation fades, it could lead to further downside for ZIP in the short term. Given this, we are cautious and looking for stable signals before re-entering ZIP or similar growth-oriented stocks.

OUR PAST TRADES WITH ZIP

80% Profit in March 2024 – BGS 20 Strategy

https://www.facebook.com/groups/bgtrading/permalink/3259359067702989

53% Profit in December 2023 – BGS 20 Strategy

https://www.facebook.com/groups/bgtrading/permalink/3209589816013248/

22% Profit in January 2023 – BGS 20 Strategy

https://www.facebook.com/groups/bgtrading/permalink/3009319706040261/

130% Profit in July 2022 – BG Trading Strategy https://www.facebook.com/groups/bgtrading/permalink/2939948196310746/

160% Profit in February – BG Trading Strategy https://www.facebook.com/groups/bgtrading/permalink/2506396272999276/

25% Profit in April – BGS 20 Strategy https://www.facebook.com/groups/bgtrading/permalink/2407075719597999/

20% Profit in October – BGS 20 Strategy https://www.facebook.com/groups/bgtrading/permalink/2407075719597999/

21% Profit in August – BGS 20 Strategy

Should I Buy (ASX: ZIP) Now?

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