Zip (ASX:Z1P) will become the largest pureplay BNPL on the ASX this week. What might this mean for shareholders?

What will Afterpay's departure mean for Zip shares?

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Key points

  • Afterpay shares are set to leave the ASX in just a few days
  • That will leave Zip as the ASX's largest pureplay BNPL share
  • What does this mean for Zip shareholders in 2022?

It's rather strange to picture, but in a matter of a few days, the Afterpay Ltd (ASX: APT) share price will leave the ASX boards. Yes, Afterpay's last day of trading on the ASX will be this Wednesday, 19 January.

Last week, Afterpay received the green light from the Bank of Spain for its upcoming merger with the giant US payments company Block Inc (NYSE: SQ), formerly known as Square. This was the final hurdle for both companies to overcome before the merger could take place, so it's now full-steam ahead. And that will leave Zip Co Ltd (ASX: Z1P) as the largest pureplay ASX buy now, pay later company on the Australian share market.

If you remember, the Afterpay-Block merger was first announced back in August last year. It will result in Afterpay investors receiving an all-scrip deal that will exchange every share of Afterpay still held for a fixed ratio of 0.375 Block shares. To facilitate an easy transition for ASX shareholders, a CHESS depository interest (CDI) share class will begin trading on the ASX from 2 February (under the ticker code SQ2). Investors can either elect to have their Afterpay shares exchanged for the NYSE-listed SQ stock, or these new ASX-listed SQ2 CDIs. 

So after this, BNPL investors looking for a stake in the largest 2 BNPL companies in Australia will either have to settle for Block shares or an investment in Zip Co.

So what does this mean for shareholders? Will some of Afterpay's shareholder base migrate over to the Zip share price?

Is the Zip share price a buy in 2022?

Well, we can't say for sure on the latter. It is, of course, possible. But it is also possible that many shareholders will just take the Block shares on offer. Or else just cash out after what has been an incredibly bumpy, and lucrative, few years for Afterpay on the ASX. Remember, although the Afterpay share price has had a rollercoaster ride over the past year, it's still up an extraordinary 2,210% or so over the past 5 years.

But on the former, Zip could be in the driver's seat, according to one ASX broker. As my Fool colleague James covered last week, broker Morgans is 'add' rated on Zip Co at the moment, with a 12-month share price target of $7.54.

That implies a rather lucrative potential upside of more than 100% over the next year. The broker noted that "the [BNPL] sector is suddenly unloved by investors, so solid 1H22 results are required to change sentiment". But it expects this to be the case, with a prediction of "strong revenue growth for APT and Z1P (~100%) on pcp)".

However, it is still expecting both shares to still report losses for the first half of FY2022 when it comes to net profits after tax.

That could bode well for Zip shareholders if Morgans' estimates turn out to be true. But we shall have to wait and see what the BNPL landscape looks like once the dust settles from the blockbuster Afterpay-Block wedding.

At the current Zip Co share price, this BNPL share has a market capitalisation of $2.17 billion.

Motley Fool contributor Sebastian Bowen owns Block, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited, Block, Inc., and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Afterpay Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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