Why Morgans thinks Zip Co Ltd can keep climbing in FY18


Small caps have punched well above their weight in the last financial year as the sector outpaced its bigger brothers. Some of these high flyers may have more left in the tank too.

This isn’t to say that the S&P/ASX SMALL ORDINARIES (Index:^AXSO) (ASX:XSO) can deliver another 20% gain in FY19 like it did last year compared to the 7% rise in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), but there are clearly still great opportunities among the juniors for those who care to look.

There are two that are worth putting on your radar. The first is consumer financing solutions company Zip Co Ltd (ASX: Z1P) which has jumped around 33% over the past 12-months.

That’s not quite as spectacular as the gains made by cannabis company Cann Group Ltd (ASX: CAN) or online shopping site Kogan.com Ltd (ASX: KGN) but Morgans thinks there’s more room for Zip Co to zoom ahead.

Zip Co’s operating environment looks bright and you only need to look at the share price gain of its peer Afterpay Touch Group Ltd (ASX: APT) to understand Zip Co’s potential appeal.

Morgans initiated coverage on Zip Co with an “add” recommendation as the broker is impressed with the growth of the business.

“ZIP has delivered strong growth in key operational metrics since listing with customer and merchant numbers increasing by 35%-40% on average (sequentially) over the last five quarters. 3Q18 transactions processed by ZIP were also up 123% on the pcp [previous corresponding period],” said Morgans.

“We estimate a sizeable addressable market for ZIP in Australia, potentially equating to around A$310bn in annual sales.  We observe just 1% penetration of this target market would increase ZIP’s current annualised transaction levels by ~5.5x.”

What this says to me is that there is space in the domestic market for both Afterpay and Zip Co to succeed. Add in the overseas expansion opportunity and you can see why there’s plenty of room for growth for the industry.

Other things that Morgans likes about Zip Co include its highly scalable and low-cost platform, its proprietary real-time credit approval processing technology and its multi-product offering that will increase the addressable market opportunity for the company.

Morgans estimates that Zip Co will post a maiden net profit in FY20 and has a price target of $1.06 per share.

There’s another small cap shooting star that the experts at the Motley Fool are very bullish on for FY19 even though the stock has enjoyed a big surge last financial year.

Click on the free link below to find out what this stock is and why it should be on your radar.


Here’s how you can strike it rich in the share market…

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Best of all, the report is absolutely free, exclusively for readers of The Capital Club.

In this comprehensive free report, you’ll find the name of one ASX gold stock that’s not only profitable, but trading at less than 4 times forecast profits.

You’ll also discover the name of a company one fund manager has called the cheapest stock in the ASX 100, and you’ll read about the three catalysts that could push the share price higher in the next six months.

Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

With the share prices of each of these 3 companies having the potential to double or more, you’ll want to act now. Simply click here or the button below, enter your email address, and this free report will be instantly sent to you.

See the 3 stocks