Buy now, profit later as investors go shopping for Australia's Afterpay

By Tom Westbrook and Byron Kaye

SYDNEY (Reuters) - An Australian standout stock of the COVID-19 era, consumer lender Afterpay Ltd, is tipped to post a fifth straight annual loss on Thursday but will likely keep its high valuation as investors believe it can benefit from changing retail conditions, fund managers said.

The Sydney-listed company, which has seen its shares rise 900% since March, has been likened to tech-focused companies around the world seen as winners from the shift to working at home.

The purchase of a 5% stake by China's Tencent Holdings Ltd in May seemed to underscore the potential and the stock has roughly tripled since.

But Afterpay's forecast net loss of about A$47 million ($33.8 million), according to the average estimate of six analysts polled by Refinitiv, may draw attention to the difference between the perceived long-term prospects of what is now the country's 17th-largest listed company and its near-term financials.

Jun Bei Liu, a portfolio manager at Australia's Tribeca Investment Partners which has owned the stock for years, said the focus will be on any increase in bad debts and how the company plans to keep growing.

"For this company to retain the premium that it trades on, it needs to continue to show impeccable execution," she said. "So far, so good, but the high valuation does carry a fair bit of risk."

Afterpay declined to comment as it is in a media blackout before reporting results. In February, CEO Anthony Eisen said the company's rapid growth "will impact group profitability (but) we expect to achieve higher profitability in each market as they mature over time".

The company recently upped its forecast underlying pre-tax profit to A$44 million for the year, from a prior range of A$20 million to A$25 million, citing a better-than-expected rate of collecting shoppers' debts.

In Australia, much of the virus-related tech stock rally has centred on so-called buy-now-pay-later companies like Afterpay which are expected to capitalise on an explosion in online shopping and popularity with younger shoppers anxious to avoid credit card fees.

On Monday, Afterpay's shares jumped 5% after it said it bought a Spanish rival for 50 million euros.

"My view is that Afterpay is effectively an unsecured lender with minimal credit checks and no capital," said Omkar Joshi, portfolio manager at Opal Capital Management, which does not have Afterpay shares.

"That is not a tech company in my honest opinion," he said.

"I am nervous about that whole space, but the reality is it won't matter until some time in the future. While the share prices might eventually fall from their highs, it's very hard to know when that will happen."

($1 = 1.3897 Australian dollars)

(Reporting by Tom Westbrook and Byron Kaye; Editing by Kim Coghill)