Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/toast-inc" target="_blank" data-smartkarma-citation="entities:34261:1" rel="noopener">Toast (TOST US)</a> increased its IPO price range to<a href="https://finance.yahoo.com/news/restaurant-software-provider-toast-raises-144113955.html" target="_blank" rel="noopener"> $34 to $36</a> per share on 20 September, up from $30 to $33 per share previously. The company plans to offer 21.74 million class A shares through its IPO. At the high end of the revised up IPO price ($36 per share), Toast Inc would raise $783 million.</p><div class="content-highlight">
<p>Our base case valuation of Toast Inc is implied market cap of US$24.9 billion or US$45.5 per share, which is 26% higher than the high end of the IPO price range (US$36). Given the decent upside, we have a POSITIVE view of this IPO. </p>
<p>Our valuation of Toast Inc is based on an EV/S multiple of 10.1x using our estimated sales of $2.4 billion in 2022. The EV/S multiple of 10.1x is based on a 10% discount to the average multiple of the comps in 2022.</p>
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Toast (TOST US) increased its IPO price range to $34 to $36 per share on 20 September, up from $30 to $33 per share previously. The company plans to offer 21.74 million class A shares through its IPO. At the high end of the revised up IPO price ($36 per share), Toast Inc would raise $783 million.
Our base case valuation of Toast Inc is implied market cap of US$24.9 billion or US$45.5 per share, which is 26% higher than the high end of the IPO price range (US$36). Given the decent upside, we have a POSITIVE view of this IPO. 
Our valuation of Toast Inc is based on an EV/S multiple of 10.1x using our estimated sales of $2.4 billion in 2022. The EV/S multiple of 10.1x is based on a 10% discount to the average multiple of the comps in 2022.


IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<p><a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a>, formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> (29.6% of outstanding shares), Softbank Vision Fund (18.3%), <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> (7.2%) and <a href="https://www.smartkarma.com/entities/berkshire-hathaway-inc-cl-b" target="_blank" data-smartkarma-citation="entities:8635:1" rel="noopener">Berkshire Hathaway Inc Cl B (BRK/B US)</a> (2.8%).  </p><p>Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. </p><p>The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. </p><div class="content-highlight"><p>As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm's fundamentals are attractive. </p></div>

Paytm (PAYTM IN), formally known as One97 Communications, is India’s largest payments platform based on the number of consumers, number of merchants, number of transactions and revenue as of 31 March 2021, according to RedSeer. Paytm has an overall payments transaction volume market share of 40%, and wallet payments transaction market share of 65-70% in India as of FY21, according to RedSeer. Paytm’s shareholders include Ant Financial Services Group (6688 HK) (29.6% of outstanding shares), Softbank Vision Fund (18.3%), Alibaba Group (BABA US) (7.2%) and Berkshire Hathaway Inc Cl B (BRK/B US) (2.8%).  Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. The Indian Government is highly supportive of digital payments and in 2016, introduced demonetisation efforts through the launch of Unified Payment Interface (UPI) to reduce the reliance on cash. However, India continues to be a cash-driven economy which underscores the opportunity. Due to government initiatives, improving technology, growing awareness, digital payments by value in India are expected to more than double from $20 trillion in FY21 to $40-50 trillion by FY26, according to RedSeer. As India’s largest payments platform, Paytm is well placed to benefit from this structural tailwind. The advent of UPI has increased competition (Google Pay, PhonePe, MobiKwik) but Paytm is also leveraging its dominance in digital payments to build a synergistic ecosystem of complementary services, resulting in a strong claim to the “super-app” tag. While the COVID-19 pandemic was disruptive particularly to the non-payments business, Paytm should return to growth as the impact of the pandemic wanes and vaccination rates rise in India. Overall, we think that Paytm's fundamentals are attractive. 

Paytm IPO Initiation: A Payments-Led Super-App

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<p><a href="https://www.smartkarma.com/entities/root-inc" target="_blank" data-smartkarma-citation="entities:29692:1" rel="noopener">Root Inc (ROOT US)</a><a href="https://www.businesswire.com/news/home/20201020005703/en/Root-Inc.-Announces-Launch-of-Initial-Public-Offering" target="_blank" rel="noopener">announced</a> its IPO terms and it will offer 24.16 million shares of common shares in the IPO (22 million shares offered by Root and 2.16 million shares sold by a major shareholder). The IPO price is currently expected to be between $22 and $25 per share. However, we expect this IPO to receive a very high demand, and the IPO price range is likely to be raised prior to final pricing. </p>
<p>We are including Root Inc in our model portfolio.</p>
</div><p>We forecast the company to generate revenue of $616.1 million in 2020 (up 112.3% YoY) and $1,070.2 million in 2021 (up 73.7% YoY). From 2019 to 2022, we have assumed the company's revenue to increase by 78.9% CAGR. The combination of the company's exploding revenue growth and improvement in the reduction of net losses as a percentage of revenue is very impressive indeed.</p><p><strong>Our base case valuation for Root is an implied market cap of $13.2 billion, or $52.1 per share, which is 108% higher than the high end of the IPO price range of $25 per share. Given the very high upside, we have a positive view of the Root IPO and we include this stock in our model portfolio. </strong></p>


Root Inc (ROOT US)announced its IPO terms and it will offer 24.16 million shares of common shares in the IPO (22 million shares offered by Root and 2.16 million shares sold by a major shareholder). The IPO price is currently expected to be between $22 and $25 per share. However, we expect this IPO to receive a very high demand, and the IPO price range is likely to be raised prior to final pricing. 
We are including Root Inc in our model portfolio.
We forecast the company to generate revenue of $616.1 million in 2020 (up 112.3% YoY) and $1,070.2 million in 2021 (up 73.7% YoY). From 2019 to 2022, we have assumed the company's revenue to increase by 78.9% CAGR. The combination of the company's exploding revenue growth and improvement in the reduction of net losses as a percentage of revenue is very impressive indeed.Our base case valuation for Root is an implied market cap of $13.2 billion, or $52.1 per share, which is 108% higher than the high end of the IPO price range of $25 per share. Given the very high upside, we have a positive view of the Root IPO and we include this stock in our model portfolio. 

Root Inc IPO Valuation Analysis (Insurtech SaaS)

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>Pushpay offers a software which allow attendees of church to make donations through mobile payments. The company operates predominantly in the US and the company is poised to benefit from growth in faith donations market in the US. The digital payments still account for a negligible share in the US church donations segment and Pushpay being a leading player in this niche market exposes the company with significant potential. Pushpay has just started making operating profits and we expect the company’s margins to expand further going forward.</p>

Pushpay offers a software which allow attendees of church to make donations through mobile payments. The company operates predominantly in the US and the company is poised to benefit from growth in faith donations market in the US. The digital payments still account for a negligible share in the US church donations segment and Pushpay being a leading player in this niche market exposes the company with significant potential. Pushpay has just started making operating profits and we expect the company’s margins to expand further going forward.

DoubleDown Interactive / Equity Capital Markets

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<p><strong>Valuation multiple DoubleU Games paid for Double Down Interactive</strong> - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6 million from International Game Technology, based on a 10.5x Double Down's 2016 adjusted EBITDA valuation multiple. So this would be a key valuation multiple to consider when valuing this company. </p>
<p>We have assumed EBITDA of $117.3 million in 2021 so using EV/EBITDA multiple of 10.5x, this would suggest a forward EV of $1.2 billion or an implied market cap of $1.0 billion or $20.50 per share. We have assumed the company's IPO price at $18 per share (mid-point of IPO range of $17 to $19 per share).</p>
<p>Based on the 10.5x EBITDA, the implied price of $20.50 would be 14% higher than the IPO price of $18 per share. Thus, the IPO is acceptable at the low to mid-end of the IPO price range but becomes less attractive at the high end of the IPO price range. </p>
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Valuation multiple DoubleU Games paid for Double Down Interactive - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6 million from International Game Technology, based on a 10.5x Double Down's 2016 adjusted EBITDA valuation multiple. So this would be a key valuation multiple to consider when valuing this company. 
We have assumed EBITDA of $117.3 million in 2021 so using EV/EBITDA multiple of 10.5x, this would suggest a forward EV of $1.2 billion or an implied market cap of $1.0 billion or $20.50 per share. We have assumed the company's IPO price at $18 per share (mid-point of IPO range of $17 to $19 per share).
Based on the 10.5x EBITDA, the implied price of $20.50 would be 14% higher than the IPO price of $18 per share. Thus, the IPO is acceptable at the low to mid-end of the IPO price range but becomes less attractive at the high end of the IPO price range. 


Double Down Interactive IPO Valuation Analysis

United States

Shift4 Payments, Inc. provides payment processing solutions. The Company offers software for transaction and money transfer activities. Shift4 Payments serves customers in the United States.

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Shift4 Payments (FOUR US)

Toast Inc Valuation Analysis

Our base case valuation of Toast Inc is implied market cap of US$24.9 billion or US$45.5 per share, which is 26% higher than the high end of the...

Douglas Kim

Paytm IPO Initiation: A Payments-Led Super-App

Paytm plans to raise up to Rs166.0 billion ($2.2 billion) with a primary/secondary split of 50%/50%, according to the DHRP filing. Overall, we...

Arun George

Root Inc IPO Valuation Analysis (Insurtech SaaS)

Our base case valuation for Root is an implied market cap of $13.2 billion, or $52.1 per share, which is 108% higher than the high end of the IPO...

Douglas Kim

Pushpay (Asia Payments): Have Faith

Pushpay offers a software which allow attendees of church to make donations through mobile payments. The company operates predominantly in the US...

Shifara Samsudeen, ACMA, CGMA

Double Down Interactive IPO Valuation Analysis

Valuation multiple DoubleU Games paid for Double Down Interactive - In June 2017, DoubleU Games acquired Double Down Interactive for $825.6...

Douglas Kim

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