An analyst at broker Bell Potter has slapped a share price target of $28 on Afterpay Touch Group Ltd (ASX: APT).
According to the AFR, Bell Potter analyst Lafitani Sotiriou has maintained his buy rating on the buy now, pay later business and was impressed with the progress that was reported.
As a reminder, Afterpay said that its underlying sales – being the value of sales processed through Afterpay – increased by 147% to $2.3 billion.
It also said that it had over 3.1 million active customers at the end of December 2018, which was 118% higher compared to a year ago and it has around 3.5 million customers today. It also said it now has 23,200 active merchants at the end of December, just over doubling in a year, with around 25,300 merchants today. Total income grew by 91% to $116.1 million.
Mr Sotiriou went on to write "Afterpay Touch has delivered one of its most important results. It has shown that it can expand overseas while maintaining a lid on bad debts, and a stable overall net-margin. It was able to absorb late fee caps, and invest heavily into establishing the U.S. business.
"The model looks like it is working, in Australia Afterpay EBITDA jumped from ~$17 million in first half of 2017-18 to ~$35.7 million in first half 2018-19. This improvement was hidden by investment in the international expansion."
Despite the positive words, he downgraded earnings per share (EPS) estimates in FY19 and FY20 due to the additional investing that Afterpay is doing to accelerate growth, although he thinks FY21 underlying EPS will now be higher as the customer growth becomes reflected in the profit.
Foolish takeaway
I will be very surprised if Afterpay's share price increases by another 57% over the next year from here. It is delivering impressive growth of customers, merchants and revenue but the better it does the more likely a competitor, such as FlexiGroup Limited (ASX: FXL) or USA-based ones, will try to muscle in on the action. Perhaps Afterpay's brand is too strong to catch up with at this stage?
Either way, it would have been better to buy shares when there was fear, where Afterpay's share price went below $12.
