By Colin Kruger
Afterpay soared in a relief rally that included fellow buy now, pay later stocks despite the cloud of the potential coronavirus fallout continuing to hang over the sector.
Afterpay shares jumped more than 60 per cent to a high of $16 on Friday, although it was still short of the $19 it was trading at on Tuesday before concerns about the hit its business model would take as more of its Millennial customer base lose their jobs.
Afterpay is expected to take a hit as the coronavirus pandemic hits the job market and retail sales. Credit: AAP
Amid the gyrating share antics this week UBS abandoned its long-held sell rating on the buy now, pay later provider.
“Following Thursday’s 33 per cent share price fall, and a 68 per cent fall over the past month, we upgrade Afterpay to neutral and remove it from our APAC key call sell list,” the investment bank wrote.
It said the upgrade came despite heightened uncertainty to operating conditions in the future as a result of the coronavirus pandemic.
“Near-term impacts from COVID-19 remain highly unpredictable,” UBS said. “While we move our base case forecasts to reflect a more significant impact, potential scenarios remain wide.”
But the investment bank said Afterpay's strong equity funding and naturally high receivables turnover meant “near-term funding risks are likely low”.
Consumer finance provider Flexigroup withdrew its earnings guidance on Friday. But it also offered the assurance that its funding is secure and its consumer finance customers are older and not as financially frail as Afterpay's customers.
"Across all Flexigroup segments, over 75 per cent of our customers are over the age of 35, with a strong penetration of home ownership, and the businesses we support have been trading on average for more than four years," the company said on Friday morning.
Flexigroup said earnings are likely to be lower this financial year "due to market conditions" and withdrew guidance for transaction volume growth to be between 10 and 15 per cent for this financial year.
The company said that it will be vigilant in managing approval rates and bad debt losses from customers in the current environment.
"Any change to losses as a result of COVID-19 is expected to be within risk tolerance parameters," the company said.
Flexigroup also indicated it will get a boost from the billions in low-cost loans the government is making available via the Australian Office of Financial Management.
Afterpay rival Splitit also took the opportunity on Friday to highlight the significant differences between it and other buy now, pay later providers, noting that as it utilises capacity on a customers' credit card it does not need to finance the transactions or wear the risk of the customer not paying.
"Splitit does not engage in direct consumer financing or issue short-term consumer loans and therefore consumer default is not a Splitit business risk," the company said.
Splitit shares jumped as much as 15 per cent to a high of 28¢ on Friday. Flexigroup shares jumped as much as 17 per cent to a high of 70¢ on Friday