Company Overview: Access Innovation Holdings Limited (ASX: AIM) makes use of its technology platform to deliver content for live and recorded captioning, transcription, translation etc. services. Its cloud-based platform translates speech-to-text in multiple languages through the use of a combination of artificial as well as human intelligence and machine learning. The Group has operations in the regions of ANZ, North America, EMEA and Asia.

AIM Details

Stable Revenue Streams & Demand for Video Services Driving Growth: Access Innovation Holdings Limited (ASX: AIM) provides live and recorded captioning, transcription, translation and speech analytics services through its proprietary cloud-based technology platform. The market capitalisation of the company as on 06 April 2021, stood at ~$118.01 million. As per a recent update, the company has appointed John Bird as its Chief Financial Officer, effective from 15 March 2021. Mr. Bird had previously held the role of CFO and COO of Regeneus, an ASX-listed biotechnology company.

The sector outlook looks promising and the global market has been forecasted to grow to US$14.7 billion by 2022. The company believes that with the onset of the COVID-19 pandemic, there will be increased traction for the demand of its services due to the adoption of video as a strategic tool for business and education purposes.

During H1FY21, the company reported a growth of ~21% in total revenues to $22.9 million in comparison to the previous corresponding period. The service revenue grew by ~26% to $22.7 million on pcp, driven by demand for accessibility services in remote working conditions. It delivered a gross profit of $8.8 million in H1FY21 which was in line with the prospectus forecast numbers.  AIM derived ~60% of its revenue from Live Enterprise business segment, compared to ~50% in the prior corresponding period. It ended the period with a cash position of $8.8 million as of 31 December 2020.

H1FY21 Financial Performance (Source: Company Reports)

Income Streams Through Three Stable Product Lines: The company generates its revenue through its business segments of – Live Enterprise, Live Broadcast and Recorded streams. The Live Enterprise segment contributed revenue of ~60% to the total revenues in H1FY21, followed by Recorded services with a contribution of ~24%. The Live platform, which provides live captions and interpretation on real-time basis, finds its application in global businesses, universities, schools, government organisations and events. It also provides live captions for broadcasters and the clientele includes global and domestic broadcasters, and OTT streaming networks. In the recorded business segment, it provides high-quality recorded captions, subtitles, transcripts and audio descriptions. In addition to universities and businesses, it offers its recorded services to SME's and content producers. AIM generates revenue on the basis of contracts with time-based charges.

Segment Performance (Source: Company Reports)

Decent Growth in Offshore Markets: AIM has witnessed decent growth across all offshore markets with North America delivering ~37.9% increase in revenue to $10.3 million in H1FY21. There was also significant growth in the ROW market by ~195% to $3.5 million in H1FY21, from $1.2 million in H1FY20. The growth has been supported by an increase in multilingual recorded and live work during the period. The company has also been looking to diversify its revenue base from broadcast clients towards Government, Corporate and Education clients.

Top 10 Shareholders: The top 10 shareholders together form around 57.75% of the total shareholding, while the top 4 constitute the maximum holding. Abrahams (Anthony) and Weir (Deanne Evelyn) are holding a maximum stake in the company at 19.09% and 11.15%, respectively, as also highlighted in the chart below:

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Key Metrics: The company reported a gross profit of 38.5% in H1FY21. It also reported an improvement in asset turnover ratio to 0.69x in H1FY21, from 0.66x in H2FY20. There was an increase in the liquidity of the company with the current ratio at 2.12x in H1FY21, compared to 0.88x in H1FY20. AIM reported a considerable reduction in debt levels to $1.69 million as of 31 December 2020, from a level of $15.42 million as of 30 June 2020. The debt-to-equity ratio stood at 0.06x during H1FY21.

Growth and Liquidity Profile (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

Key Risks: The company has a considerable part of its operations in foreign territories and thus is exposed to the risk of currency fluctuation. It will continue to mitigate the risk through sensitivity analysis and cash flow forecasting. The Group is also prone to interest rate risks arising from its long-term borrowings.  The onset of the COVID-19 pandemic has augmented the company’s demand and services for its products. However, the company has to continue to look for revenue-generating opportunities in the COVID-19 phase in order to grow its business and increase market share.

Outlook: The company expects to deliver a decent performance in FY21, aided by the increased adoption of video communication tools. It has reaffirmed its FY21 prospectus forecasts across its businesses and anticipates $43.8 million in revenues from services. The acquisition of Caption IT and Caption Access further augments the FY21 forecasts with anticipation of a revenue contribution of US$1.1 million in H2FY21. In order to sustain the growth in the post-COVID-19 phase, AIM has invested more than $50 million in its platform since 2009, and further plans to ramp up capacity to meet higher demand led by a strong pipeline.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has a large and diversified customer base of over 2300 customers globally which includes the likes of QIY, Foxtel, Verizon, Singtel, Optus, World Economic Forum, to name a few. As per ASX, the stock of AIM is trading below its average 52-weeks’ levels of $0.710-$1.510. The stock of AIM gave a positive return of ~3.20% in the past one week and a negative return of ~6.39% in the past one month. On a technical analysis front, the stock of AIM has a support level of ~$0.779 and a resistance level of ~$0.899. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the decent top-line performance and strong customer base of renowned clientele. For the purpose, have taken peers such as Nine Entertainment Co Holdings Limited (ASX: NEC), Ooh!Media Limited (ASX: OML), Seven West Media Limited (ASX: SWM), to name a few. Considering the expected upside in valuation, current trading levels, decent increase in services revenue, stable balance sheet and an optimistic outlook with increased traction in demand for video communicating tools & platform, we recommend a ‘Buy’ rating on the stock at the current market price of $0.805, down by 1.227% as on April 06, 2021.

AIM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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