Consolidation of the BNPL Sector appears imminent
With the ZIP Co Limited (ASX:Z1P) share price declining 81 per cent from $13 to $2.50, and the Sezzle Inc (ASX:SZL) share price declining 84 per cent from $11.40 to $1.80, it seems increasingly likely the Buy Now Pay Later (BNPL) sector will consolidate with a ZIP – Sezzle Inc merger.
Despite Z1P and SZL recording a strong trajectory from a revenue perspective, both remain cash flow negative businesses. From recent ASX announcements I have tried to paint a picture for investors, with a particular focus on the December 2021 Quarter, and in the fourth column below I have assumed the two companies have agreed to a nil premium merger.
| December 2021 Quarter | ZIP (ASX: Z1P) | SEZZLE (ASX: SZL)* | Combined |
| Market Capitalisation | A$1.45b | A$0.35b | A$1.80b |
| Transaction Value | A$2.6b (+53% YoY) | A$0.77b (+75% YoY) | A$3.37b |
| Customer Numbers – 31 December 2021 | 9.9m (+57% YoY) | 3.4m (+51% YoY) | 13.3m |
| Transaction Value- December 2021 Qtr./Customer (average) | A$262.63 | A$226.47 | A$253.38 |
| Merchants | 81,800 (+110% YoY) | 47,000 (+76% YoY) | 128,800 |
| Transaction Value – December 2021 Qtr./ Merchant (average) | $31,785 | $16,383 | $26,165 |
| Revenue | A$167.4m (+58% YoY) | A$47.7m (+49% YoY) | A$215.1m |
| Revenue / Transaction Value | 6.4% | 6.2% | 6.4% |
| Net Cash Used in Operating Activities | $54.1m** | A$56.9m | A$111.0m |
| Cash on hand plus undrawn credit as at 31 December 2021 | A$212.5m | A$148.3m | A$360.8m |
| Theoretical period left before Cash is spent | < 12 months | < 8 months | < 10 months |
*SZL US$ numbers converted to A$ assuming a US$0.72/A$1.00 exchange rate
**Z1P recorded a cash EBITDA loss of A$108.1m in the 6 months to December 2021. Assume half this for the December 2021 Quarter.
While we don’t have all the data to 31 December at the time of writing, we can still make the following assessment based on a nil premium merger between Z1P and SZL. This assumes no doubling up of numbers:
- Market capitalisation of A$1.80 billion.
- Transaction Value for the December 2021 quarter of A$3.37 billion or an annualised A$13.5 billion.
- Customer numbers as at 31 December 2021 of 13.3 million.
- Transaction Value per customer for the December 2021 quarter of A$253.38, or an annualised A$1,013.52.
- 128,800 merchants.
- Transaction Value per merchant for the December 2021 quarter of A$26,165, or an annualised A$104,660.
- Revenue of $215.1 million for the December 2021 quarter or an annualised A$860.4 million.
- Revenue/ Transaction Value of 6.4 per cent.
- Cash used in operating activities of $111 million for the December 2021 quarter, giving “mergeco” less than 10 months of cash on hand and undrawn credit (at 31 December 2021).
- Based on SZL’s A$56.9 million of “Net cash used in operating activities” for the December 2021 quarter, it seems a nil premium merger – followed by a severe cost cutting program – would dramatically reduce the combined company’s current cash burn.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
