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Why has the Afterpay (APT) share price rebounded?


Shares in BNPL market leader Afterpay have tumbled nearly 24% over the past month.

Shares in Australian buy now pay later (BNPL) giant Afterpay (ASX: APT) have topped the list of gainers on the ASX on Wednesday.

The stock, which has had a terrible run in recent weeks that saw it lose nearly a quarter of its value in the last month, surged over 7.5% to $78.50 in early trading.

What is behind the bounce in the Afterpay stock price?

The rebound in Afterpay shares comes after positive news that provides certainty to its impending takeover by US financial services and digital payments giant Square (NYSE: SQ), now renamed Block.

Afterpay told investors on Wednesday that Block has now received regulatory approval in Spain for the acquisition of an indirect subsidiary.

The 2 companies have faced numerous hurdles in completing their merger, with Afterpay last month having to delay its shareholder meeting to vote on the deal because a subsidiary hadn’t received approval from Spain’s central bank.

“Now that Bank of Spain approval has been received, the (merger) Scheme is fully unconditional and will be implemented without the need for further shareholder or court approval,” Afterpay said in a statement to the ASX.

The companies expect to complete the merger in the first quarter of 2022, with Afterpay’s shares expected to be suspended from trade on the ASX at the close on 19 January.

Sector overhang

Shares in both Afterpay and Block have fallen more than 40% since the all-share deal was announced in August, then valued at US$29 billion (AUD$39 billion).

Afterpay’s shares have largely traded in line with Block’s stock price since then.

Since Afterpay shareholders will receive a fixed ratio of 0.375 Block shares for every share they own, any fall in the Block share price reduces the value of the deal for Afterpay investors.

In the meantime, investor sentiment in the buy now pay later sector has also turned negative with interest rates poised to move higher, receding growth prospects and rising regulatory risks facing the sector.

The approval creates a “small window of opportunity” for Afterpay investors who have seen the discount gap between Afterpay and Block shares widen since the beginning of 2022, analysts at Macquarie Research said on Wednesday.

“APT’s share price should trade in line with SQ going forward and whilst the story is a bit more complicated now versus when the proposed acquisition was initially announced in terms of the BNPL operating environment, the potential impact to Cash App from waning government payments, and tech multiples coming in on higher rate expectations, SQ shares are still quite undervalued in our view.”

Rest of the sector rises

The positive news for Afterpay has seen its rivals also gain market share.

In early trading main challenger brand Zip Co was up 4% following Afterpay’s rise.

Shares in Sezzle were also up 2%, while Splitit was up 1.5%

Think Afterpay shares are a buy?

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