ASX BNPL March Wrap: Inflation to drive uptake, but expect new regulation this year
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Despite the recent selloff, Buy Now Pay Later (BNPL) is getting more popular all over the world.
According to the latest Global Payments Report, the whole BNPL industry is currently estimated to be worth around US$157 billion.
US accounts for US$17 billion, the UK US$4 billion, and Australia – the birthplace of BNPL – at US$14.2 billion.
Around 30% of Aussies have used BNPL services in the past 12 months. Of those, a worrying 20% have used the service to pay for essential everyday items like food and utilities.
Surveys show that as consumer prices rise due to rampant inflation, more and more people are relying on BNPL to pay their bills.
There are now signs of concerns, with 15% of Aussies who use BNPL having missed or been late on their payments.
Around 80% of those have experienced financial hardship as a result of money owed to BNPL companies. And most have resorted to taking out additional loans, perpetuating the cycle.
Consumer groups are now starting to become vocal, with many warning that BNPL is causing harm to society and forcing people into a downward debt spiral.
In December last year, Treasurer Josh Frydenberg said the Fed government planned to legislate “the largest reforms to our payments systems in a quarter of a century”.
The reform is expected to include everything from digital wallets, to cryptocurrencies and BNPL.
“If we do not reform the current framework, it will be Silicon Valley that determines the future for us,” Frydenberg said.
Consultations with the industry have begun, and by mid this year the government will have set out a long-term plan for our payments system – including new legislations on BNPL.
|Code||Name||Price||% Change||Market Cap|
|NOV||Novatti Group Ltd||0.26||10.6%||$82,147,893|
|HUM||Humm Group Limited||0.83||-7.8%||$416,025,387|
|LBY||Laybuy Group Holding||0.079||-21.0%||$20,385,536|
|Z1P||Zip Co Ltd.||1.51||-27.1%||$983,512,032|
It’s hard to pick a winner in the BNPL space, with most stocks seeing negative returns in March.
Here’s a rundown of what happened in March.
The SQ2 share price has been extremely volatile, sinking to as low as $116 in February before gaining all of it back by early March.
It then plunged again to $133 in mid March, before regaining it all back in the latter part of the month.
To put the SQ2 share price move in perspective, when the Square-Afterpay deal was announced, Block Inc shares (then called Square) traded at US$247 in the US. At the same time, Afterpay (APT) was valued at around $126.
APT last traded on the ASX at ~$66 just before delisting, and the new US-linked Block Inc shares opened on the ASX at ~$175 on January 21.
Despite this volatility, major brokers have recommended the stock lately. Last week, Mizuho gave Block Inc shares traded on the NYSE a target price of US$247 (now at US$133).
Mizuho said it will maintained its “Buy” rating on Block Inc, but it’s their CashApp business (instead of Afterpay’s BNPL business) they said would underpin its fate going forward.
Data obtained from the NYSE register also revealed less short positions on the Block Inc stock, with the shorts down by 11% over the past month.
In the last 30 days, pure play BNPL stock Zip was down by 10%.
On 11 March, the company announced a $50 million share purchase plan (SSP) to shareholders.
It was part of a $200m cap raise to fund the recent US$360m acquisition of ASX-listed Sezzle (ASX:SZL).
Zip’s business has maintained its strong growth, and in the last half year its revenue increased by 89%.
But increasing operational costs and rising bad debts reduced its profits by 23% for the half.
Novatti has been the pick of the smaller BNPL plays in March.
The company’s shares soared after a record-breaking half year results, as it delivered a 51% year-on-year growth in sales for the first half.
Novatti mainly focuses on payments services across Southeast Asia, but it also manages Afterpay’s payment card solutions in New Zealand where it is licensed by Visa to issue prepaid cards.
The company is working to fulfil its ambitions to enter Australia’s banking market, and it’s currently liaising with Australia’s banking regulator.
To pursue this goal, Novatti completed a $40m plus capital raising during H1 FY22, along with a $10.5m Series A funding.
Humm was down 6% over the past month.
The company has been a regular issuer in the securitsation market since 2011, and in March it announced another $250m of asset-backed securities (ABS).
It was Humm’s eighth ABS green notes issuance across all rating levels from ‘AAA’ down to ‘BB’, which took its aggregate green bond issuance to over $600m.
Humm has been able to call its ABS bonds ‘green’ as they are issued to finance solar receivables.
Those bonds meet the requirements for certification under the current version of the Climate Bonds Standard.
In March, Laybuy said that based on past experience, it anticipated an improvement in credit collections in Q4 as a result of improved fraud and credit risk management tools being introduced.
Laybuy has experienced prolonged elevated credit and fraud losses in January and February (especially in its UK business), which has resulted in a negative Net Transaction Margin (NTM) being recorded in those months.
The company says that fraudulent activity, which is a key driver of credit defaults, has increased globally in recent months and this has impacted those companies involved in e-commerce, including the BNPL sector.
As a result, Laybuy has downgraded its guidance for FY22.
Revenue is anticipated to increase between 43% and 48% for FY22 over the prior year, but it will be lower than earlier guidance of 60-70%.
At Stockhead we tell it like it is. While Novatti is a Stockhead advertiser, it did not sponsor this article.