According to one top broker, the Openpay Group Ltd (ASX: OPY) share price could be undervalued right now.
What did the broker say?
A note out of Shaw and Partners reveals that its analysts have recently retained their buy (high risk) rating and put a $5.00 price target on the buy now pay later provider's shares. This price target implies potential upside of 92% over the next 12 months.
This follows the release of a first quarter update which showed that Openpay delivered a 245% jump in active plans to 1,060,000 and a 95% increase in total transaction value to $68 million.
Key drivers of this growth were a 145% lift in active customers to 372,000 and a 35% rise in active merchants to 2,229. In respect to the latter, the broker points out that one of Openpay's new merchants was fast-growing online retailer, Kogan.com Ltd (ASX: KGN).
It also notes that while its merchant growth has slowed in recent quarters, this is largely due to the company targeting larger enterprises.
What else did the broker like?
Shaw and Partners was pleased with the company's very low bad debts, which were down to a market-leading 1.6%. This compares to normalised industry levels of ~3%.
It was also pleased with its focus on the UK market and its performance in the country. It notes that the company is "pursuing [the] UK channel whilst other largely homogenous BNPLs pile into the US."
In addition to this, it is pleased with the company moving into new vertical channels and the way it differentiates itself from Afterpay Ltd (ASX: APT).
It commented: "[Openpay is] moving into new vertical channels with agreements with Pentana (1,900 car dealer deployment) and MSL/Stack Sports (sports memberships). This compares to the crowded BNPL space where most of the incumbents, unlike OPY, merely replicate the APT model."
What about the future?
Shaw and Partners is expecting a strong second quarter for FY 2021, particularly given its deal with Kogan and Woolworths Group Ltd (ASX: WOW).
"2Q21 shaping up to be potentially massive period given (1) underlying seasonal growth expected to be significant given Xmas trading; (2) recent wins from Kogan, JD Sports Australia and Just Group all contributing; (3) WOW deal now "live"; (4) Pentana / MSL still to be fully implemented; and (5) VIC re-opening," it concluded.
