Zip shares soar on completed raise
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The news: Zip shares climbed after it closed a capital raise that will be used to pay down debt.
The numbers: Zip shares were up 12.15% to $1.80 by 3:20 pm, with the $217 million raise completed at a 2.8% discount. Existing eligible shareholders will still have the opportunity to buy into a $50 million share purchase plan.
Citi analysts set a target price of $1.40 following confirmation of the raise based on Zip’s improved monthly transaction rates, management of bad debt, and partnerships in the US market that could deliver enough revenue for Zip to hit its target EBITDA margin of 1% to 2%, exceeding Citi’s FY25 projection of 0.7%.
UBS analysts were even more bullish, raising their target price by 23% to $1.90. They increased future earnings projections based on the $23 million in annual interest saved from the retirement of Zip’s $150 million corporate debt facility.
Both Citi and UBS also pointed to a total transaction volume growth of 42% in US markets during the fourth quarter, which was above expectations.
The context: Zip announced the $267 million raise Wednesday, as it looked to pay down existing debts and fund growth with the proceeds.
Citi and UBS analysts both rated Zip a ‘buy’ and RBC analysts included Zip in its top small-cap picks heading into the new financial year.
Citi noted that the raise was opportunistic but made sense to use to retire "expensive corporate debt".
What they said: “We are delighted with the extremely strong support we have received from high-quality existing and new shareholders for the Placement,” Zip CEO and MD Cynthia Scott said.
“The Placement will enable Zip to repay its existing corporate debt, optimise our capital structure and provide Zip with great flexibility for future growth.”
RBC analysts said: “Strong FY24 earnings momentum is a key positive, but when combined with a newly repaired balance sheet gives us confidence in the long-term sustainability of the business".
The sources: ASX announcement, Citi research, UBS research, RBC research
