Zip’s FVE Unchanged on Generally In-Line Q2 Fiscal 2020 Results

No-moat Zip Co's fair value estimate remains AUD 3.90 per security following strong second-quarter fiscal 2020 results. Compared with the second quarter of fiscal 2019, revenue is up 88%, transaction volumes are 85% higher, and customer receivables are 105% higher. However, the faster growth in receivables relative to revenue means the yield on average receivables (revenue divided by average receivables) is lower compared with fiscal 2019. We estimate annualised yield has fallen to about 14% at Dec. 31, 2019 from about 17% at June 30, 2019. Part of the reason for the lower yield is just timing, given the typically strong growth in receivables during the Christmas period. The higher receivables should result in higher revenue in the second half of fiscal 2020, leading to a higher receivable yield in the second half. Nevertheless, the yield on quarterly receivables has been progressively falling since the second quarter of fiscal 2019. Receivable yields are tracking slightly below our forecast, but receivables growth is tracking slightly above estimates, leading only to minor changes in forecast underlying net profit after tax, or NPAT.