The Afterpay Ltd (ASX: APT) share price will be on watch on Thursday following a surprise after-market update on its FY 2020 performance.
What did Afterpay announce?
This afternoon the payments company revealed that its unaudited FY 2020 Net Transaction Loss (NTL) as a percentage of underlying sales is going to be better than previously expected.
On 7 July 2020, the company released an update which advised that its NTL as a percentage of underlying sales was expected to be up to 55 basis points in FY 2020.
However, the company now expects to report an NTL of just 0.38% for the financial year.
Management advised that this improvement is primarily due to higher than anticipated collections of instalment payments relating to its 30 June 2020 receivables balance that have occurred since then.
This has translated into a materially lower provision and lower losses than previously expected.
Earnings guidance lifted.
In light of this positive change in NTL, Afterpay's unaudited FY 2020 Net Transaction Margin (NTM) as a percentage of underlying sales and its EBITDA (excluding significant items) are expected to be higher than previously thought.
Management expects its NTM to be at approximately 2.25% and its EBITDA (excluding significant items) to be approximately $44 million. This compares very favourably to its previous NTM guidance of 2% and EBITDA guidance of $20 million to $25 million.
In respect to its provisions, Afterpay's unaudited provision for expected losses is expected to be approximately $34 million. This is based on an unaudited gross consumer receivables balance of approximately $817 million.
Management explained: "The July Trading Update for the FY20 NTL% was based on a relatively short period of collections data relating to the 30 June 2020 receivables balance from 1 July 2020 through to the date of the 7 July 2020 announcement. Since that time, and with the benefit of more collections data reviewed as part of the process of preparing the full year financial statements, a reduced NTL% is now expected."
