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Square land grab overshadows AU earnings season

Market Updates

Most people were expecting Afterpay to report yet another period of stellar growth this earnings season.

Those results came earlier than expected, released last Monday, and with a significant surprise attached: Afterpay was being sold to US payments giant Square.

That announcement sent shock waves through the Australian market and kicked up a media storm. (According to reports from the AFR, trade in Afterpay accounted for as much as 10% of all trade that happened on the ASX last week.)

Overall, investors responded optimistically but with some caution to this deal. The takeover bid, after all, wasn’t all cash or even mostly cash: rather, for every Afterpay share investors held at the record date they would receive 0.375 Square shares.

Using that valuation model, Square’s takeover bid valued Afterpay at about $39 billion or $126 per share. The all-stock part of the deal is where things get tricky and explains why Afterpay’s stock was not initially bid to Square’s offer price. In essence, until the deal is finalised, Afterpay’s share price will be leveraged to Square’s share price. Give or take some currency fluctuations, Afterpay shareholders may be in for a bumpy road until the deal closes, expected to happen sometime in the first quarter of 2022.

As an aside, Afterpay did notch up impressive growth on a full-year basis, across FY21 reporting underlying sales of $22.4 billion (+102%, YoY), revenues of $978 million (+88%, YoY) and active customers of 16.2 million.

Looming reports

All of this has overshadowed what is likely to be a relatively important corporate earnings season for ASX-listed companies. Indeed, after the pandemic ripped a hole in corporate earnings in 2020, 2021 is poised to be a more consistent affair. Consistency aside however, the emergence of the delta covid-19 variant has changed the equation somewhat – with investors likely to place an extra focus on any guidance or commentary concerning how these outbreaks may impact FY22 results, across the board.

This week we have earnings reports due out from a number of high-profile companies, including:

  • Monday: Suncorp, Transurban Group
  • Tuesday: Challenger, James Hardie Industries
  • Wednesday: Commonwealth Bank of Australia, Insurance Australia Group
  • Thursday: AGL Energy, AMP, Telstra
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