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Targeting undervalued technology stocks

A company that holds a valuable stake in a buy-now-pay-later firm is trading on a material discount to sum-of-the-parts valuations even though it’s probable that a large US fintech group will attempt to buy it out
Targeting undervalued technology stocks
  • 10 per cent stake in Clearpay revalued to £125m (£106.6m at 31 December 2020 and £53.7m at 30 June 2020)
  • Net profit of £71.7m in 12 months to 30 June 2021
  • Net asset value doubled to £134.5m (126.2p a share)
  • Takeover of Afterpay post period end by Square Inc

Annual results from Aim-traded finance company ThinkSmart (TSL:103p) highlight the hidden value held in its 10 per cent stake in Clearpay, a fast-growing UK payment platform that enables consumers to split the cost of retail purchases into interest-free payments. The other 90 per cent of Clearpay is owned by Afterpay Touch (APT:ASX – A$122), a A$36bn (£19bn) market capitalisation Australian Stock Exchange-listed technology group that has recommended a US$29bn (A$39bn) all-share takeover from New York Stock Exchange-listed Square Inc (NYSE:SQ.), a US$113bn fintech group.

The 10 per cent stake is subject to a call/put arrangement between the two parties exercisable in 2023-24. One of the agreed principles in determining the valuation of the stake is the market capitalisation of Afterpay. This has increased markedly in the past 12 months. Other agreed principles include Clearpay’s customer base and contribution to Afterpay’s revenue and profits. On all counts Clearpay is making significant progress.

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