Seven Stocks in the Online and Software & Services Sectors

Carsales.Com Ltd

CAR Details
Strong revenue growth expected in FY17: Carsales.Com Ltd (ASX: CAR) has reported a growth of 10% in operating revenue to $344.0 million for FY 16 as compared to FY15 and the adjusted net profit grew 9% to $110.5 million. Moreover, CAR’s dealer revenue increased by 10% year on year (yoy). The private seller revenue grew by 19% and the display revenue grew 9% year on year. The Finance and related services showed strong growth with gross profit up 29% year on year. Brazilian and South Korean international investments reported strong local currency revenue growth. Additionally, CAR had acquired 83% of Chileautos in Chile during the second half of FY 16 and had acquired 65% of SoloAutos during the first half of FY 16. In addition, the Domestic core business performance in the first month of FY17 was strong. The company is continuing to build scale and breadth with a number of promising opportunities. CAR is expecting FY17 revenue and EBITDA growth to remain strong due to stable market conditions. Internationally, CAR is expecting no further deterioration in market conditions and the trialing of the lead model into Brazil to be a good growth contributor to local currency revenue and earnings in FY 17. Korea is expected to see continued solid local currency revenue and earnings growth.

 

Revenue & EBITDA Performance (Source: Company Reports)
 
In addition, CAR is expecting the ongoing integration of core carsales IP and technology into Chilean and Mexican businesses which would offer solid uplift in revenue and earnings in FY 17. On the other hand, investors have been recently concerned over the limited potential of Australian division growth. Investors are worried over a further double digit growth on Australia by the group. The group is holding its AGM on October 28, 2016. Still the stock is trading at a higher P/E. Accordingly, we give an “Expensive” recommendation on the stock at the current price of $12.36

 
CAR Daily Chart (Source: Thomson Reuters)

Freelancer Ltd

FLN Details
Acquisition of assets of Escrow Angel and its automotive brand Protecti: Freelancer Ltd (ASX: FLN) has acquired Australian online escrow service Escrow Angel and its automotive brand Protecti. Moreover, FLN reported a 56% increase in the net revenue to $26.2 million in 1H 2016 as the Gross Payment Volume grew 453% to $354.9 million on prior corresponding period. FLN has achieved positive operating EBITDA of $0.1 million. Moreover, FLN is focusing on an increased investment in talent and on repositioning the newly acquired Escrow.com business for growth. FLN stock rose over 9.93% in the last six months (as of October 07, 2016) and we believe the momentum would continue in the coming months. We maintain a “Buy” recommendation on the stock at the current price of $1.50

 
FLN Daily Chart (Source: Thomson Reuters)

Nextdc Ltd

NXT Details
Capital Raising: Nextdc Ltd (ASX: NXT) recently completed $150 million placement and entitlement offer ($45 million raised via retail entitlement offer). The capital is being raised to fund the second Sydney data center. NXT was under a trading halt until the opening of trade on September 07, 2016. Meanwhile, the revenue surged 52% to $92.8 million in FY 16 beating the guidance of $85 million to $90 million. EBITDA has increased 247% to $27.7 million, meeting the top of its guidance range of $25 million to $28 million.
 

FY 16 Financial Performance (Source: Company Reports)
 
NXT has reported a statutory net profit of $1.8 million, as compared to a net loss of $10.3 million in FY 15. In addition, NXT expects the revenue to be in the range of $115 million to $122 million for FY17, which is an increase of 24% to 31% against FY 16. The EBITDA is expected to be in the range of $46 million to $50 million, an increase of 66% to 80% on FY 16. Meanwhile, NXT stock rose 48.95% in the last six months (as of October 07, 2016) and still we give a “Hold” recommendation on the stock at the current price of $4.05

 
NXT Daily Chart (Source: Thomson Reuters)

CogState Limited

CGS Details
Concerns over cost rise in FY 17: CogState Limited (ASX: CGS) reported a 69% growth in the revenue to A$27.3m in FY 16 as the Clinical Trials revenue grew 68% to A$25.6m. As per the guidance, CGS has reported positive Earnings before Interest & Tax (EBIT) in FY16 of A$1.03 million as compared to the loss of $3.06m in FY 15 and a Net Profit after Tax (NPAT) of A$2.6 million against the loss of $5.06m in FY 15. Moreover, CGS expects the revenue to grow 60% to A$17.5 million in FY 17.

 

FY 16 Financial Performance (Source: Company Reports)
 
However, CGS expects that the overhead costs related with new product development would increase beyond the $3.29 million costs incurred in the FY 16. The total cost of new technology development is expected to increase in the range of A$5.5 - A$6.0 million in FY 17. Moreover, CGS stock has already risen 27.01% in the six months (as of October 07, 2016) placing them at slightly higher levels and accordingly, we give an “Expensive” recommendation on the stock at the current price of $0.87  

 
CGS Daily Chart (Source: Thomson Reuters)

Hansen Technologies Limited

HSN Details
Growth rates in FY 17 to be lower than FY 16: Hansen Technologies Limited (ASX: HSN) reported a 40% yoy increase in the operating revenue to $148.9 million in FY 16. The net profit after tax grew 54.4% yoy to $26.1 million and the earnings per share is up 42.7% yoy to 14.7 cents on FY 2015. Moreover, HSN would finish the integration of PPL Solutions, acquired effective 1^st July 2016 in FY 17.

 

FY 16 Financial Performance (Source: Company Reports)
 
On the other hand, the growth rates for FY 2017 have been forecasted to be limited, wherein the revenue is expected to be in the range of $165 million to $175 million while the EBITDA margin is expected to be between 25% and 30%. Moreover, HSN stock already rose over 24.59% in the last three months (as of October 07, 2016), placing them at a higher P/E. Accordingly, we give an “Expensive” recommendation on the stock at the current price of $4.58

 
HSN Daily Chart (Source: Thomson Reuters)

  Xero Ltd

XRO Details
Growth of the subscribers and the global revenue: Xero Ltd (ASX: XRO) is growing with the addition of 242,000 new subscribers in FY16 to 717,000 globally versus 222,000 for the year to September 2015. At this current rate, XRO should exceed 1 million global subscribers in the next year. Moreover, XRO in FY 16 has reported operating revenue of $207.1 million, which is an increase of 67% on FY15. The global revenue grew 95% in international markets on year-on-year basis and 57% growth in Australia and New Zealand.

 

Subscription Growth (Source: Company Reports)
 
Meanwhile, Xero has crossed quarter billion annualized revenue. Moreover, with the increase in subscription, XRO can add roughly NZ$100 million of annualized revenue. XRO’s annualized committed monthly revenue is $257.9 million, which is an increase of 62% on year-on-year basis. Meanwhile, XRO stock rose 19.76% in the six months (as of October 07, 2016). Accordingly, we give a “Buy” recommendation on the stock at the current price of $17.56

 
XRO Daily Chart (Source: Thomson Reuters)

Altium Limited

ALU Details
Weak operating cash flow in FY 16: Altium Limited (ASX: ALU) reported a revenue growth of 17% to $93.6M in FY 16 and 29.3% of EBITDA margin growth, while achieved $100.4M sales. There is a 20% increase in number of new AD licenses sold and 11% increase in subscribed seats to 31,134. On the other hand, ALU has reported weak operating cash flow of US$14.1 million in FY 16 versus US$20.4 million in FY 15, which is affected by the termination of an onerous lease for US$1.5 million related to the relocation to the US last year as well as US$10.8 million build in receivables over the year 2016.
 

Financial Performance over the years (Source: Company Reports)
 
The tax paid has also jumped up to US$5.4 million from US$0.7 million that was paid last year. The group is forecasting >$100M revenue in FY17.  ALU stock rose 43.98% in the last six months (as of October 07, 2016), and currently trading at a high P/E. We give an “Expensive” recommendation on the stock at the current price of $8.83  

 
ALU Daily Chart (Source: Thomson Reuters)

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