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(ASX: Z1P) | ZIP CO – UPDATED AS PER 1H FY24

Feb 28, 2024

Sentiment: Sideways

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.

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.

Below, you can see multiple SP swings allowing trades between 30-200% back in 2020 and 2021, before the bearish intersection that trigged the tech and growth stocks sell off.

In 2023, ZIP experienced a decline for the majority of the year amid high inflation levels, except for the last two months when the stock surged over 149% from its lows of 25 cents. If purchased 52 weeks ago, you would be down by 14%. However, the recent upward trend indicates the trend reversal, as the stock is currently trading in a bullish trend, well above the SMA250, suggesting a sustainable long-term turnaround as mentioned in our previous analysis. The long term moving average is sitting just under 71c, and that is the key area to buy or re-enter into the stock at a technically discounted price.

If you have held the stock for the last 12 months, you would be up by 75%, therefore showing that Zip would have been a great investment for the savvy trader that bought at lower levels.

OUR PAST TRADES WITH ZIP

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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ENTRY DETAILS, TRADING CONSIDERATIONS, TARGETS, CAPITAL FLOW ANALYSTS, SHAREHOLDER STATISTICS AND HOLDING TREND

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The information provided by BG Trading to you does not constitute personal financial product advice. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. BG trading recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance).