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More pain ahead for Zip shares: UBS slaps sell rating and $1.00 price target

Fri 04 Mar 22, 12:10pm (AEST)
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Source: iStock

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Key Points

  • Zip's outsized first-half loss was a surprise to UBS analysts
  • The broker expected Zip to roughly breakeven

A rebrand, continued international expansion, breaking new financial records and a merger with Sezzle (ASX: SZL).

These are all the things Zip (ASX: Z1P) has achieved since last October. The net result?  

A -76% decline in share price. 

UBS sees more pain ahead

UBS has slapped Zip with a Sell rating and a $1.00 price target (-41% downside).

UBS said the company’s half-year loss of -$172m was a shock compared to its forecast to breakeven.

The main driver behind the unexpected loss was a 403% increase in bad debts and unexpected credit losses. 

Zip said that the company had revised its risk settings in core markets during the course of 2021. The goal was to maximise growth whilst balancing revenue and net bad debt write offs.

Clearly, the adjustment had taken on too much risk, with bad debts and write offs of $148.3m compared to $29.5m a year ago.

Other factors flagged by UBS included: 

  • Lower long-term growth expectations 

  • A higher discount rate (reflecting higher interest rates)

  • Dilution from $200m capital raise 

In conjunction with the Sezzle acquisition, Zip initiated a $150m capital raising and $50m share purchase plan. 

The capital raising is worth approximately 13.3% of Zip’s existing shares on issue. 

Zip price chart
Zip 5-year price chart

 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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