Negative re-rating for BNPL continues as Afterpay gets clipped

The broader negative re-rating for ASX BNPL stocks — market darlings in the post-COVID boom — has continued with another sharp selloff this morning.

Afterpay (ASX:APT) got belted after its soon-to-be parent, Nasdaq-listed Block Inc, slumped by more than 8% overnight.

US tech stocks got clipped on Wednesday following the latest updates on 2022 interest rates from the Federal Reserve.

The inflation genie

Minutes from the bank’s latest meeting showed Fed committee members were warming to the idea of faster-than-expected rate hikes to try and tame inflation.

While that was no different to what the bank said at its meeting last month, bond yields have continued edge higher since then and they rose again overnight.

While higher inflation has been a central market topic for 6+ months, the market reaction has been varied in that time. And the prospect of higher rates didn’t stop global stocks from pushing to new all-time highs in December.

But the overnight price action shows that as policy begins to tighten at the edges, it at least has the capacity to increase volatility.

Afterpay followed Block Inc lower with a fall of almost 10%, Splitit (ASX:SPT) got pummelled as well while Zip Co (ASX:Z1P) and Sezzle (ASX:SZL) continued their recent retreat.

The latest sector falls are in line with a bearish market outlook put forth by tech investor Dean Fergie, in an interview with Stockhead at the end of December.

M&A

Amid the broader selloff, there was a notable BNPL deal as Latitude Group (ASX:LFS) lobbed a $335m cash-and-share bid to acquire the BNPL operations of fintech lender Humm (ASX:HUM).

The news followed a market update by Humm on December 20, where it flagged possible takeover interest for all or part of the company.

The two companies have signed a non-binding heads of agreement pending additional due diligence this month.

Market reaction to the deal was muted, as HUM shares dipped slightly while Latitude shares edged higher.

“Latitude has proposed consideration of 150 million Latitude shares (worth $300m based on a $2.00 Latitude share price) and $35 million cash,” the company said.

Humm’s consumer finance division includes a BNPL component, which LFS plans to merge into its pay-by-instalment service which provides interest-free BNPL services — primarily for larger consumer items.

The acquisition of Humm’s consumer finance division would leave it as the sole operator of its separate SME lending division.

“We believe that the Latitude proposal is potentially attractive to HUM shareholders and warrants due diligence and detailed negotiation,” HUM chair Christine Christian said.

Latitude said the two parties expect to sign completion documents by the end of this month, with the deal then to be finalised by the end of the June quarter.