Director buys can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at 3 ASX fintech shares with multiple recent director buys.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.
3 ASX fintech shares insiders are snapping up
Afterpay Ltd (ASX: APT)
Four Afterpay directors took advantage of the March downturn in the share price to acquire an aggregate of more than 934,000 shares in the company. Afterpay is the best known of Australian buy now, pay later (BNPL) shares. The Afterpay share price dropped a dramatic 78% from a February high of $40.50 to a low of $8.90 on 23 March. Three directors bought shares between 20 and 23 March.
They have since been richly rewarded, with the share price having recovered nearly 150% to $22. Afterpay released a letter to shareholders following the steep decline in its share price saying it was not aware of any information that would have precipitated the share price decline. According to Afterpay, it has a business model, balance sheet, and customer base that creates a level of protection in times of uncertainty.
Afterpay said it has a strong liquidity position with cash on the balance sheet of $402.5 million. It has over $1.09 billion of warehouse facilities in place providing the capacity to grow underlying sales by an additional $15 billion above its Q2 FY20 run rate of over $11 billion.
CEO Anthony Eisen said Afterpay's service "promotes budgeting by responsible customers," emphasising that the service is unable to be accessed by customers that have a single overdue repayment. "We believe the appeal of Afterpay as a disciplined budgeting tool will not be diminished and may be enhanced with changing market conditions," Eisen told shareholders.
With a business model based on high-frequency purchasing and repayment rates, average transaction values are low (around $150) as are average outstanding balances (around $211).
Afterpay acknowledged it was not immune to the current 'unprecedented circumstances'. It intends to release a business operating update today, which it says will provide further details around its balance sheet, liquidity position, and what it is seeing in terms of developing trends.
Splitit Ltd (ASX: SPT)
Three Splitit directors bought an aggregate of more than 1.2 million shares in the company in late March. Splitit is a BNPL provider that allows customers to pay by instalments using their existing credit cards. As such, Splitit helps customers manage their existing credit, and does not provide new credit to customers.
Listing in January 2019 at an issue price of 20 cents, shares in Splitit reached a high of $1.60 in March 2019 before falling to 22 cents this March. They have since moved up more than 60% to 36 cents.
In mid-March Splitit advised it had not seen any material impact from coronavirus on its merchant sales volume and revenue. While acknowledging that we could expect softer spending globally, it continues to see strong growth in new merchants and partnerships. Its unique business model means its exposure to credit losses is negligible.
Splitit says it targets a more affluent and high credit quality demographic who are financially savvy. Splitit allows customers to use established and available credit card limits to manage cash flows. The company only targets online merchants, and as a relatively new BNPL provider it is growing from a lower base than competitors.
In March, Splitit released its annual report which showed merchant numbers grew 92% in 2019 to 720. Merchant sales volume grew 52% to US$88 million. Active shoppers grew 55% to 119,000, while the average order value grew 46% to $863.
Money3 Corporation Limited (ASX: MNY)
Three Money3 directors acquired an aggregate of more than 900,000 shares in the company in March. Money3 is a personal and car loan provider operating in Australia and New Zealand. One in 500 registered vehicles in Australia have a loan with Money3.
Shares in Money3 fell 73% from a February high of $3.03 to a March low of 81 cents. They have since recovered somewhat and are up 70% from their low, currently trading at $1.38.
In late March, the company reported it expected earnings for the 9 months ending 31 March to be approximately $23 million. This was consistent with previous guidance for net profit after tax in excess of $30 million for FY20. Nonetheless, Money3 withdrew its full year guidance, saying it believed doing so was prudent as the economy entered a period of uncertainty.
Money3 says it has a strong balance sheet with a cash position of $46 million. It also has low leverage with net debt being 30% of the loan book. It drew an additional $40 million on its existing debt facilities in Australia in mid-March. The Australian facilities can be unilaterally extended by Money3 to a maturity date of December 2022.
Money3 anticipates loan volumes will decrease through the period of economic disruption, but any reduction in loan volumes will lead to an increase in the cash position, further improving liquidity.
Foolish takeaway
While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.
