Case Study: Zip Co Placement and Share Purchase Plan

08 February 2021 @ 12:00am SPP Harvester

Overview of Zip Co

The Buy Now, Pay Later (BNPL) industry has been one of the biggest beneficiaries of the COVID-19 crisis. An increase in online shopping and card payments means more people have the option to Buy Now, Pay Later. BNPL stocks listed on the ASX were up an average of 87% in 2020 and since mid-March 2020 up until February 2021, are up 572%.

Australia’s second-largest buy now, pay later player Zip Co (ASX:Z1P) has launched itself into the spotlight in 2020, reaching an all-time high of $10.65 per share in late August off the back of a phenomenal FY20 and a unique partnership with eBay Australia. Shortly after, Zip expanded into the US through its acquisition of QuadPay but was met with sharp pullbacks following PayPal’s announcement of its own BNPL product –
Pay-in-4.

Despite the volatility in trading price, Zip Co continues to bolster its position as a leader in the BNPL sector and in December, looked to accelerate growth through an equity raising.

A closer look into Zip Co's equity raising

In December, Zip Co announced an equity raising for up to $120m via an institutional placement alongside a $30m share purchase plan. At the time of announcement, Zip Co was trading at a share price of $5.57. The purpose of the capital raise was to aid in the acceleration of offshore growth in key regions such as the US and UK, as well as entering new markets through strategic investments/partnerships in the UAE and EU.

¹To last traded price on 16th December (Placement close date)
²To last traded price on 13th January (SPP close date)

Offering shares at a 4.1% discount, the Zip Co Placement successfully raised its target amount of $120m(~22.5m shares) at $5.34 per share. A strong capital raising and the popular Buy Now, Pay Later market set the expectation of a profitable return for institutional investors, however, a sharp dip after the placement had institutional investors see a loss of 4.3% 1 day after the placement shares began trading.

For investors in the share purchase plan, the new shares were to be issued at the lower of the Placement Price and a 2% discount to the 5-day volumed-weighted average price leading up the SPP close date. This resulted in a final SPP price of $5.29. The disappointing return for institutional investors didn't deter retail shareholders as Zip raised $56.7m(~10.7m shares) in total, accepting oversubscriptions totalling $26.7m. This ensured all SPP Harvester^TM investors who applied for the SPP received their full allocation.

SPP Harvester^TM investors who were issued their shares from Zip on the 21st of January were concurrently greeted with Zip Co's Q2 results announcement highlighting an 88% increase in revenue YOY. Off the back of the announcement, Zip Co's share price rose 25%, resulting in a 1-day return of 39.1%.

One particularly noteworthy question to conclude: Was Zip Co worse off because SPP HarvesterTM investors sold their SPP shares to other investors?

On the day that SPP HarvesterTM investors sold their SPP shares, the total volume of Zip shares trading on the ASX exceeded $120m(~16m shares). SPP HarvesterTM  represented a fraction of a single day’s trading. On top of that, Zip Co raised additional funds from SPP HarvesterTM to support its global expansion.

Hence, the resounding answer is no - in fact, both the company and SPP HarvesterTM investors mutually benefited.

Don’t miss out on the next share purchase plan - join SPP Harvester^TM.