Although it tumbled lower yesterday, that didn't stop the Afterpay Touch Group Ltd (ASX: APT) share price from recording an impressive gain in September.
The payments company's shares raced 15.8% higher last month, stretching their year to date gain to a massive 189%.
Why did the Afterpay share price race higher last month?
After trading flat for most of the month, investors were fighting to get hold of the payments company's shares during the final week of September following the release of a bullish broker note out of Goldman Sachs and an update on its dealings with AUSTRAC.
In respect to the latter, the confidential interim report of external auditor, Mr Neil Jeans, has now been provided to AUSTRAC and does not give any recommendations, which will be left to the final report. Furthermore, management reiterated that it has not identified any money laundering or terrorism financing activity via its systems to date.
Whilst this was a positive, I suspect that the broker note out of Goldman Sachs had the biggest impact on its share price performance.
According to the note, it upgraded Afterpay Touch's shares from a neutral rating to a buy rating and added them to its conviction list. The broker has also lifted the price target on its shares materially to $42.90.
It made the move after it upgraded its frequency of use assumptions for the US and UK following a review of the company's disclosures in its FY 2019 result.
It pointed out that the early patterns of repeat use in the US "showed that 74% of transaction value in June 2019 was from returning customers and that ANZ users who have been on the platform for three years are transacting over 20x p.a. (vs. >4x p.a. in Year 1)."
It believes this demonstrates that the platform has a resonance with users; will drive turnover in its receivables book (capital efficiency accelerates); signals lower default rates; and provides strong operating leverage.
This ultimately led to the broker lifting its gross merchandise value (GMV) and earnings per share forecasts significantly. It expects Afterpay Touch to achieve GMV of A$29.2 billion in FY 2022, which is 46% above the company's A$20 billion+ target, and earnings per share of 30 cents in FY 2021 and 71 cents in FY 2022.
Should you invest?
Whilst it is a high risk investment, I agree with Goldman Sachs on it and would also class its shares as a buy for long-term focused investors.
Elsewhere, also rising strongly in September were the shares of FlexiGroup Limited (ASX: FXL) and Zip Co Ltd (ASX: Z1P). The two BNPL rivals saw their shares rise 37% and 36%, respectively, last month.
