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Afterpay share price races higher on bullish broker note

The Afterpay Ltd (ASX: APT) share price has been on form again on Tuesday.

In afternoon trade the payments company’s shares are up 3% to $33.48.

Why is the Afterpay share price pushing higher today?

As well as getting a boost from a strong update from Zip Co Ltd (ASX: Z1P) on Monday, Afterpay’s shares were given a lift today by a positive broker note out of Goldman Sachs.

The broker has been looking through its expectations for Afterpay in the first half and appears confident another stellar result is coming. In light of this, Goldman has reiterated its conviction buy rating and $42.90 price target.

This price target implies potential upside of over 28% even after taking into account today’s gain.

What does Goldman Sachs expect in the first half?

According to the note, Goldman suspects that customer additions and gross merchandise value (GMV) could exceed its estimates by around 10%.

Based on its latest disclosure for trading to end of November and app download data for December, Goldman Sachs believes that Afterpay’s customer base could have reached as much as 7.2 million globally at the end of December. This compares to the broker’s estimate of 6.6 million.

Furthermore, it has suggested that its GMV could be ~A$4.8 billion for the half, given that it achieved A$3.7 billion by November 30. Goldman has previously forecast GMV of $4.3 billion for the half.

Another positive according to Goldman Sachs could be its Net Transaction Profit (NTP) Margins. The broker notes that its AGM update revealed that its NTP Margins were trending in line with FY 2019. This implies an NTP Margin of 2.3%, versus its estimate of 1.8%.

However, Goldman isn’t amending its full year forecasts just yet. Although it appears confident that Afterpay will beat its forecasts in the first half, it is a touch concerned that the strong end to the calendar year could mean much softer trends in January and February.

As a result, it warned that that it be “too early to capitalise this potential upside until we can more clearly observe customer addition trends through the March 2020 quarter.”

Afterpay is scheduled to release its half year results in February.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.