In many respects the fairly rapid decent of BNPL stock Zip Co’s (ASX: Z1P) share price , since peaking at $13.92 mid-February, reflects the back-to-reality sentiment dished out to the sector at large this year.
However, the recent kicker to Zip’s share price, up 18% since the beginning of the week to $5.11, can also be attributed to UBS upgrading the BNPL to Neutral from the previous Sell rating.
While first-half total transaction has not met UBS’s expectations, the broker is of the view that recent share price weakness has simply improved Zip Co's risk-reward profile.
The UBS decision to re-rate the stock comes as welcome relief, given that the consensus recommendation on the BNPL is a Hold. Interestingly, while the UBS target price decreases to $5.20 from $5.50, Morningstar puts fair value at $6.23 which is 20% premium to the current price.
Zip is also benefitting from a rally US-listed tech and payments companies earlier this week, which also saw listed payment companies and BNPLs like Tyro Payments Ltd (ASX: TYR), Afterpay Ltd (ASX: APT), and EML Payments Ltd (ASX: EML) move higher.
Record trading volumes
The broader market also took some comfort from revelations that Zip, based on its November trading update, is now generating more than $10 billion in transactions annually.
Based on its latest ASX update, Zip saw transaction volume of $906.5m in November, up by 52% - or $310.5m - on the previous period in 2020.
Management noted that the company’s BNPL product for businesses, Zip Business delivered a record trading volume of $15.2m, up 44% month-on-month.
Zip also confirmed the completion acquisition of European BNPL Provider Twisto, which the company notes, provides a regional HQ and a passport for European expansion.
Confirmation of the Twisto acquisition follows the agreement Zip entered into back in May 2021 to acquire the remaining shares of UAE-based BNPL leader Spotii Holdings Ltd.
Recapping on what has been a strong year for Zip, managing director and global CEO Larry Diamond reminded investors that the BNPL now has one of the largest BNPL footprints geographically.
“Zip remains steadfast in its mission to disrupt the unfair and broken credit card with a better and fairer digital alternative and becoming the first payment choice everywhere and every day.”
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