Analysts Afterpay target prices vary wildly

Analysts can’t agree on what Afterpay’s likely trajectory is and target prices vary wildly.

Afterpay’s Nick Molnar. Analysts can’t agree on the right valuation for the company’s shares.

Analysts remain firmly divided on market darling Afterpay, with UBS maintaining its view that the buy now, pay later provider is radically overvalued, while Morgan Stanley thinks the company’s shares could rally above $200.

UBS lifted its valuation after Afterpay's full-year results on Thursday, to just $28.25, up from its previous forecast of $27.

That’s less than a third of APT’s current share price of around $90.38. The stock continues to hover near $100, giving the company a valuation of nearly $26bn. The company has climbed by more than 1000 per cent since its low of $8 in March.

UBS said in a note that Afterpay was grossly overvalued, given Afterpay’s implied revenue growth was already baked in to its current share price.

“There were no major surprises in APT‘s result given key line items had been pre-guided. Our view on fundamental valuation remains unchanged: we think the current share price factors in over $170bn in underlying sales by FY25,” UBS said. “We maintain our sell rating, with a $28.25 price target.”

UBS predicts Afterpay will be generating just $51bn in sales by FY25.

Afterpay on Thursday posted strong underlying sales growth of 11.2 per cent to $11bn, but UBS said that the BNPL provider would have to grow that number by around 15 times over the next five years for a valuation above $90 to be justified.

UBS also flagged the risk that Afterpay might be eventually considered a credit provider, and face additional regulatory scrutiny.

Others were more upbeat on the company‘s prospects. Morgan Stanley retained its target price of $106, noting Afterpay’s forthcoming push into Asia.

Goldman Sachs meanwhile holds a “neutral” rating for APT, along with a price target of $71.95.

Royal Bank of Canada lifted its price target to $83, from $77, labelling Thursday‘s results “as expected” and said the company had posted a gamut of impressive metrics including continued increasing transaction frequency, repeat activity trends ahead of competitors and growing merchant lead generation.

“The global payments industry is massive. More specifically … just the core retail verticals of fashion and beauty present a very large addressable market. Early momentum in the US and UK has far exceeded the run-rates generated in ANZ, and recent updates from APT indicate momentum continues.”

On Thursday, Afterpay co-founder Nick Molnar told The Australian that his company’s rapid growth, particularly in the US, was showing no signs of slowing.

“What FY20 illustrated was that GMV [gross merchandise volume] in the US now in particular, is still growing at more than 300 per cent year-on-year. So to deliver $4bn of GMV and still maintain very high growth rates shows how we‘ve grown throughout all moments in time, and we’re in a very strong position.

“We‘re lucky to partner with brands like The Gap, Lululemon, Puma and others, and to have the ability to partner with the world’s biggest brands and for them to take us global but also accelerate our growth, that is a great position to be in. Within two years to achieve $4 billion of GMV and maintain a growth rate above 300 per cent puts us in a strong position for FY 2021.”