22 Oct 2019
As Afterpay endured another bad day on the sharemarket on Monday, one of the company’s long-time supporters — Cyan Investment Management — which had been accumulating stock since its float at $1 in 2016, sold out of the stock entirely.
Dean Fergie, a director of Cyan — which specialises in picking smaller cap stocks — said he wanted to employ his funds elsewhere, citing the recent failed float of Latitude Financial as a milestone for the local market which has been pushing anything in the “buy now, pay later” space higher.
“Afterpay is a very good company but we don’t think we are going to make a multiple in this stock from here,” he said.
“We are looking at new areas such as healthcare where there are better opportunities.”
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Mr Fergie and Cyan had publicly backed Afterpay until its recent US expansion and high-flying share price began to concern the fund manager.
“It’s been a key stock for us, it might have been around 5 per cent of the portfolio at one stage and I still believe they are showing a strong business performance, but the valuations are extended now in this area.
Sector fatigue
“I think you saw last week the failure of the Latitude IPO was a clear sign of fatigue with this sector.”
Mr Fergie also has concerns about the wider exposure of market favourites where a handful of stocks have enjoyed tremendous gains.
“I think the short attack on WiseTech is also interesting — a move like that and the share price decline will rub off on a lot of the companies that have run hard.”
Software group WiseTech remains in a voluntary suspension after short fund J Capital issued a highly critical note on the group last week and the stock fell 11 per cent before being taken off the market.
Scott Galloway — the New York business professor who brought the failings of Uber to public attention in the US — recently issued a high profile note on buy now, pay later companies, naming Afterpay as an overvalued company chasing “credit card rejects”.
Volatile stock
Always a volatile stock, Afterpay fell 4 per cent to $28.43 and is down from a recent top of $36.56 on October 2015.
“I don’t think Galloway said anything that has not been said before among investors like us,” said Mr Fergie.
“But it is clear the consumer is now being flooded with alternatives in the buy now pay later space, especially in Australia.”
Last week two deeply contrasting broker reports on Afterpay captured the divergence among institutional investors in the sector — Swiss-based UBS said the stock might be worth around 50 per cent less this time next year when it put a “sell” on the group and a price target of $17.25
Only hours earlier New York-based Morgan Stanley put out a note with a target share price of $44.
Asked why Cyan Capital had now chosen to sell its entire holding in Afterpay, Mr Fergie said: “We don’t want to be worrying anymore whether it’s worth $30 or $50 — the share price ran ahead and now we want to move on.”
