Afterpay confirms retail share purchase offer delayed as AUSTRAC circles

Will Afterpay pass its AUSTRAC audit is a question on investors' minds.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Afterpay Touch Group Ltd's (ASX: APT) evangelical-like following of retail shareholders will have to wait to buy more shares in the business after it confirmed its share purchase plan will be delayed until at least after the outcome of its compliance audit of its obligations to AUSTRAC under the AML / CTF Act 2006 and other financial services laws. 

The retail offer is only scheduled to be a paltry $30 million and the news comes after it allowed institutional investors to help themselves to $317 million worth of new shares at a discounted $23 a pop, which means those instos are already sitting on millions of dollars of profits, with Afterpay shares at $26.80 today.

In fairness Afterpay appears to be claiming an adverse audit outcome could see the share price bomb and then leave it open to allegations it offered the SPP to retail investors at $23 a share when it was aware that its shares might be about to bomb as it hurtled towards a failed audit. A kind of buy-now-complain-later scenario. 

To be clear though I've written a couple of times before about how the external audit should not be a big problem for Afterpay assuming its senior management know what they're doing in this space, with the client ID verification issue the key one to watch in the final auditor's report. 

As such I expect retail shareholders will still get a chance to buy shares, but later down the line. Again though they can expect to be heavily scaled back in their applications given it's offering just $30 million worth of scrip up to a maximum subscription of $15,000 per shareholder. 

In yesterday's announcement Afterpay also somewhat confusingly stated the "ability of all eligible shareholders to apply for the full $15,000 entitlement regardless of any allocation made to them during the 2018 SPP " will change without clarifying how or what exactly it intends to do. It did reference this was partly "(because 12 months will have passed between the two offers)".

It also warned again it may move to scrap the SPP altogether if for example it decides it's not worth the additional costs and administration.

This could be an even bigger disappointment to shareholders given a positive AUSTRAC audit result could see shares rocket north of $30 with the offer price set at $23.

In other words any cancellation would see Afterpay closing the door on some potentially juicy profits to its base of hardcore retail shareholder fans.

For example if we assume a big scale back of say 66% then every applicant would only gets $5,000 worth of shares, but that would still be 217 new shares at $23 each with a $7 spread to a theoretical post-AUSTRAC audit exchange traded price of $30 in September 2019.

This would mean an instant $1,500 profit to all SPP applicants and that's assuming a big scale back. Please note though this is all just speculation over different potential outcomes for entertainment purposes only.

It's also possible at the other end of the spectrum that Afterpay's auditors report its existing systems fail to meet client ID verification requirements, in which case we could see the share price well below the $23 placement price. 

Motley Fool contributor Tom Richardson owns shares of AFTERPAY T FPO.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A man analyses stockmarket graph on his computer.
52-Week Lows

The Guzman Y Gomez share price hit a 52-week low this week. Is it a buy?

Has this stock lost its spice or is it set to rebound?

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Broker Notes

Should you buy Qantas shares before reporting season? Here's what Macquarie recommends

We look at Macquarie’s expectations for the surging Qantas share price in FY 2026.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's what to expect on the local market today.

Read more »

A set of scales with a bag of money balanced against a timer, indicating growth versus value shares
Opinions

Which ASX sector offers the best value heading into earnings season?

I think one sector is particularly compelling.

Read more »

Green stock market graph.
Share Gainers

Here are the top 10 ASX 200 shares today

It was one for the history books today.

Read more »

Person holding a blue chip.
Blue Chip Shares

4 ASX 200 blue-chip shares to hold but not buy: experts

These blue-chips are worth holding if you already own them, but are too expensive for new investors to buy.

Read more »

A bricklayer peeps over the top of a brick wall he is laying with a level measuring tool on top.
Broker Notes

Are Brickworks shares a buy, hold or sell ahead of earnings season?

Brokers have been weighing property gains, US headwinds, and merger impacts to form a view.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »