INVESTMENT PROPOSITION

INVESTMENT PROPOSITION

Clearpay Valuation

 

Valuation Principles

 

On 23 August 2018 ThinkSmart sold 90% of Clearpay Finance Limited to Afterpay Ltd (formerly Afterpay Touch Group Ltd)(ASX:APT).  ThinkSmart’s retained 10% shareholding in Clearpay is accounted for as an investment at fair value on its balance sheet.  A proportion of the 10% shareholding (up to 35%) will be made available by ThinkSmart to employees of Clearpay under an employee share ownership plan (“ESOP”).

 

Afterpay has a call option to purchase the remaining Clearpay shares held by the ThinkSmart, exercisable at any time after 23 August 2023.  ThinkSmart has a reciprocal put option to sell the remaining Clearpay shares held by it to Afterpay, exercisable after 23 February 2024.  Under either the call or put option, the sale of the Clearpay shares to Afterpay will be at a price calculated on agreed valuation principles.

 

ThinkSmart has engaged a third party global professional services firm to value its retained shareholding in Clearpay for accounting purposes, and this valuation will be updated each six months for financial reporting purposes.  The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group.

 

The key judgements that are critical to the valuation are the interpretation of the agreed valuation principles, market valuation of Afterpay Ltd in GBP equivalent, and the relevant proportion of this that relates to Clearpay, and the discount to be applied for minority holding and lack of marketability of Clearpay as a standalone entity. In order to support these judgements, management have appointed independent valuation experts to advise on this matter.   The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group.

 

June 30th 2020 Valuation

 

ThinkSmart engaged a third party global professional services firm to value its retained shareholding in Clearpay at 30 June 2020 for accounting purposes. The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. This valuation was undertaken based on publicly available information, reflecting the above and including a discount of 20% to be applied for minority holding and the lack of marketability of Clearpay as a privately owned company, and produced a range of values for the Group’s 10% shareholding in Clearpay. Since March 2020 the Afterpay share price had been on an upward trajectory which continued after 30 June 2020 indicating continued growth in the value of the Group’s 10% shareholding. Further, the Afterpay FY20 accounts reflect that initial growth in active customers is followed by increases in the transaction value and underlying sales metrics as the customer base matures and repeat spend increases. To reflect the relationship between maturity of customer base and underlying sales, ThinkSmart believe that greater weighting should be assigned to active customers. In line with this, ThinkSmart has taken the valuation of the 10% shareholding at two thirds of the range produced by the independent valuation. As ThinkSmart has limited control over the setting of the price that it will receive for the transfer of the ESOP shares to the Clearpay employees, ThinkSmart has further discounted the valuation by 35% to determine the accounting fair value of its retained shareholding in Clearpay to be £53.733m at 30 June 2020.

ThinkSmart notes that, as at 30 June 2020, Afterpay have included the Clearpay put option as a separate financial liability in their accounts at AU$3m.