Australia’s largest buy now, pay later (BNPL) has announced significant cash inflows from the sale of global assets Twisto and Payflex.

Zip Co (ASX:ZIP) announced today further execution on its strategy to simplify its business and accelerate the path to positive cash flow, with the leading BNPL divesting its businesses in Central and Eastern Europe and South Africa.

The sale of Twisto and Payflex and previously announced wind-down of the Middle East is expected to generate aggregate net cash inflows of approximately $20 million during the second half of this financial year.

Reducing its global cost base is a key part of Zip’s plan to deliver group positive cash flow in the first half of FY24, a plan co-founder and global CEO Larry Diamond reaffirmed.

“With sale proceeds of approximately $20m, RoW cash burn neutralised and the up to 50% improvement in Core Cash EBTDA we are expecting in H2 FY23, we remain confident that we have sufficient cash and liquidity to deliver on our target of group positive cash EBTDA during H1 FY24,” he said.

“The completion of these Rest of World (RoW) assets sales marks another step in Zip’s transition as we become a stronger and leaner business, focused on core products in core markets.”

Pathway to profitability

Zip delivered record revenue in the first half of the financial year, with cash NTM (net transaction margin) of 2.5% and a strong gross profit of $122 million.

The company reported tightly controlled core costs which saw EBTDA losses halve for the period along with improved credit losses.

Diamond said the company’s recent results were clear proof of the successful executive of Zip’s strategy to hit profitability in the near term.

“Twelve months ago, in response to the changes in market conditions we pivoted our strategy from a focus on global growth to a focus on sustainable growth in our core markets, and accelerating our path to profitability,” he said.

“While we continue to see increased demand globally for our products from both customers and merchants, we made the decision to allocate resources to areas of our business that are either profitable or have a near and clear path to profitability.”

Sector wide trend

Zip was joined by several other major BNPL players, including Klarna, Affirm and Sezzle, who flagged group profitability this calendar year with Affirm targeting profitability this summer (June/July) according to reports in the Wall Street Journal.

It’s led some market commentators to suggest the sector could be entering an era of profitability.

Leading broker Shaw and Partners recently reiterated its Buy rating on Zip with a price target of $2.02, a significant upside on the company’s current price of $0.52.

Shaw and Partners said it believed the second half would see an “improved position on cash losses as well as improvement on cash liquidity and inflows” from the closure of non-core businesses.

It also noted that any cash inflows were “likely to be received positively by the market”.

This article was developed in collaboration with Zip Co, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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