ASX BNPL and Lithium Stocks: Novonix Falls While Openpay and Splitit Rise

Novonix Ltd [ASX:NVXshares fell 25% before entering a trading halt, while BNPL stocks Openpay Group Ltd [ASX:OPY] and Splitit Payments Ltd [ASX:SPT] rose on trading updates.

s&p asx 200 price index1Source: Tradingview.com

Novonix shares down 26% before trading halt

High-flying lithium battery tech stock NVX suffered a sharp sell-off on no company announcement and seemingly no exogenous catalyst.

The steep fall precipitated a trading halt pending a further announcement.

NVX didn’t offer further detail as to the nature of this announcement.

Novonix was mentioned in an article in the Australian Financial Review on Thursday, which argued NVX ‘could be in a green stock bubble’’ along with Australian Ethical Investments Ltd [ASX:AEF].

NVX shares have gained 630% year to date, trading at all-time highs this week.

Before today’s slump, Novonix was trading at a record-high market capitalisation of $6 billion on FY21 revenue of $5.2 million.

Meaning the battery tech was trading on about 1,200 times revenue.

Such a high valuation does leave the stock more vulnerable to changing market sentiment and prospects of rising interest rates.

Powell spooks market with new inflation stance

US Federal Reserve Jerome Powell spooked equity markets this week when he cautioned that inflation risks could lead to faster than expected interest rate hikes.

The Federal Reserve signalled on Wednesday it could bring forward the taper of economic support…even as the world races to contain the latest Omicron COVID-19 variant.

The global uncertainty was nicely summarised by Daniel Ivascyn, group chief investment officer at PIMCO, a large fund manager:

You have uncertainty around Covid. You’ve got uncertainty around inflation, uncertainty around global central bank policy. Any one of these things may not be enough to derail the rally, but all of these issues combined with bad year-end liquidity certainly can lead to some significant downside.’

As I discussed yesterday, the rally was already derailed this year for local BNPL stocks, with most ASX BNPL stocks well down from their 52-week highs.

But Novonix’s huge fall today could suggest the green rally is next in line to get its bubble pricked.

Rising inflation flips valuation narrative

For years, equity markets were operating in conditions marked by record-low interest rates. Low interest rates tend to make stocks more attractive for yield-chasing investors.

The opportunity cost of moving your money out of a savings bank account or government bonds offering paltry yields was small.

In low-interest times, money pours into stocks…and high valuations can persist for some time.

Until central banks suddenly realise, they need to curb runaway inflation.

Then, concept stocks, growth stocks, stocks with no history of profit come under scrutiny.

This is part of the reason why ASX BNPL stocks are well off their 52-week peaks since most of them are yet to turn a profit but require capital and debt to fund growth and receivables.

Splitit and Openpay bounce

Despite the protracted slump in the BNPL sector, two of the smaller BNPL stocks lifted this week on positive updates.

OPY shares were up 5% in afternoon trade on Friday as Openpay signed a US partnership with US$125 billion payments firm American Express.

And SPT was up 3% on record quarterly transaction volume.

OPY’s partnership with American Express will initially rollout to connect American Express merchants with Openpay’s ‘longer, larger and customisable’ payment plans in the healthcare and automotive sectors.

However, the partnership doesn’t give OPY access to all American Express merchants.

The initial 12-month agreement will see American Express select ‘up to 40’ of its merchants who are interested in offering BNPL.

It is unclear what commercial impact this will have on OPY’s transaction volume.

Let’s quickly turn to Splitit now.

SPT this week reached record merchant sales volume (MSV) in Q4 2021, with quarter-to-date MSV of US$94 million.

Splitit said the volume surpassed its previous record for a quarter with one month still remaining.

Despite the positive updates this week, both stocks are down significantly this year.

SPT shares are down 80% in the last 12 months. And OPY shares are down 60%.

PayPal flexes BNPL muscle

Demonstrating just how competitive the BNPL space now is — and the risks BNPL stocks face from established banks and fintechs — PayPal this week updated the market on its BNPL sales figures during the holiday shopping weekend.

Splitit reported a record US$11 million in sales volume across the holiday shopping weekend which included Black Friday and Cyber Monday.

PayPal, on the other hand, reported that during Black Friday alone, its BNPL volume was up 400% year-over-year.

PayPal processed 750,000 BNPL transactions on Black Friday.

Last November was also the first time PayPal registered more than US$1 billion of sales volume in a month through its BNPL service.

Australia’s only profitable BNPL

If you are interested in fintechs and want to read more, I suggest reading through our latest fintech report for 2022.

It profiles three promising fintechs. Coincidentally, one of them is the only profitable BNPL stock in Australia.

Regards,

Kiryll Prakapenka,

For Money Morning

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here


Kiryll Prakapenka is an investing autodidact who is passionate about conducting in-depth research on investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from The University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding of the fundamentals behind companies.


Money Morning Australia