Zip share price gains amid global asset sale

a man sits in unhappy contemplation staring at his computer on his desk in a home environment, propping his chin on his hand.a man sits in unhappy contemplation staring at his computer on his desk in a home environment, propping his chin on his hand.

The Zip Co Ltd (ASX: ZIP) share price closed higher today as the buy now, pay later (BNPL) company prepares to exit more international markets and sell off the associated assets.

In 1H FY23, Zip decided to abandon its ambitious plans to create a global payments empire amid significant pressure from stakeholders following a gut-wrenching decline in the share price.

Over the past two years, the Zip share price has declined by more than 95%.

It has fallen from a peak of $13.05 in February 2021 to a trough of 43.5 cents in June 2022.

Today, the Zip share price closed the session in the green, up 0.38% to 53 cents.

Let’s delve into Zip’s plans for divestment.

Asset sales will ‘neutralise cash burn’

The company is preparing to exit more regions in its ‘rest-of-market’ network after previously announcing the closure of operations in Singapore, the United Kingdom, Mexico, and the Middle East.

Last week at its 1H FY23 results presentation, Zip announced it was exiting more markets. It will soon sell or end operations in India, the Philippines, Turkey, the Czech Republic, South Africa, and Poland.

That means the company will exit 10 out of 14 regions, so it can solely focus on Australia, New Zealand, the United States, and Canada.

This is part of a broader plan previously announced by the BNPL operator to achieve positive cash flow by the 1H FY24.

In its 1H FY23 statement released last week, Zip said:

The Company will take actions to divest, restructure or wind down these businesses, which is expected to neutralise cash burn and deliver additional cash inflows during 2H23, contributing directly to the group’s available cash and liquidity.

Zip CEO Larry Diamond said:

[The asset sales will] deliver cash inflows during the second half of FY23 and neutralise the cash burn in these markets. With these proceeds and the improvements we are seeing in the core business, we have sufficient cash and liquidity to deliver on our target of group positive cash EBTDA during HY24.

According to Bloomberg, Zip is working with advisory firms to arrange the asset sales.

In a video interview in New York, Diamond said the asset sales should be completed by the end of FY23.

Diamond said:

We expect significant inflows from those regional sales. We are well progressed.

It’s been a tough six to 12 months to reach that conclusion [to close operations in six more regions].

But we are also pragmatic and realistic about our position; those markets would’ve taken three to four years to achieve profitability.

The post Zip share price gains amid global asset sale appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Bronwyn Allen has positions in Zip Co. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Zip Co. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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