Afterpay: An interactive valuation

Introduction

Payright is a microcap consumer financing company listed on the ASX. The company has a consumer facing app, focused on facilitating 'buy-now, pay-later' (BNPL) transactions for purchases greater than $1,000.

Payright's average transaction is $3,500, with loan durations averaging 24 months. We therefore consider Payright closer to a consumer financing platform, similar to Wizr (ASX:WZR), Plenti (ASX:PLT) and MoneyMe (ASX:MME), rather than 'pay in 4' BNPL players.

We've put together an interactive valuation that compares Payright to these peers, based on a 'Price to Book' valuation ratio.
 <excel-valuation-output></excel-valuation-output> 
The outputs above summarise Payright's current share price and market cap. This will stick to the top of your screen as you scroll further down the page and as you 'interact' with the Price to Book ratio, this valuation will update in response.

Price to Book Valuation

A price to book ratio is the ratio of market value of a company's shares (it's share price) over it's net tangible assets. Mature companies often trade at around 1x book value - but if the market views a company as having strong growth prospects, it will generally trade at a multiple of it's book value. 

All of Payright's peers are growing quickly and fit this mould, trading between 4-8x book value. Payright on the other hand trades at less than 1x it's book value - that is, less than the value of it's tangible assets.

Considering Payright has grown it's Gross Merchandise Value (GMV) for 5 consecutive quarters, we think Payright should be valued much closer to it's peers - at atleast 2-3x it's book value.

 <excel-chart-slider-input></excel-chart-slider-input> 

Drag the slider to adjust Payright's Price to Book ratio, remembering to keep an eye on valuation at the top of your screen. 

At the time this article was originally published, Payright last traded at $0.23 per share. Based on your input Price to Book ratio, Payright should trade at<shareprice-display></shareprice-display>per share.

Why is Payright so cheap compared to its peers?

We see two reasons why Payright is undervalued compared to these peers:

1) Payright has a high cost of financing: All financing companies go through a cycle of upgrading their loan facilities as they scale. As Payright scales up their loan book and proves their ability to hold credit losses at a reasonable level - facility providers will be more willing to provide debt at a cheaper rate. 

Payright has appointed Gresham partners to source a new warehousing facility. We expect that this will slash Payrights financing costs from roughly 10% today to ~5% based on the rates that their peers see - signficantly improving profitability. Keep an eye out for this as a key share price catalyst.

2) Payright has been a victim of the BNPL selloff: Whether or not Payright should be classified as a BNPL is up for debate - but either way we see the sell down as overdone considering Payright has consistently grown it's GMV, revenue and loan book.

Summary

At the time of writing this article, Payrights valuation was $15.3M or $0.22 per share. You arrived at a valuation of<valuation-display></valuation-display> or<shareprice-display></shareprice-display> per share.