Company Overview: Hipages Group Holdings Ltd (ASX: HPG) is an online trading platform and SaaS provider that connects traders with residential and commercial consumers to ease out the process of property improvement. It operates an online marketplace and facilitates the connection of consumers to the trade service providers in the home improvement and natural therapy sectors.
HPG Details
Shift in Revenue Model & Increasing Tradie Base Driving Profitability: Hipages Group Holdings Ltd (ASX: HPG) is an Australian-based marketplace platform that connects consumers and traders primarily for home improvement activities. The market capitalisation of the company as on 30 March 2021, stood at ~$278.20 million. The company got listed on the ASX on 12 November 2020, and raised a total IPO proceeds of $100.4 million. It received primary proceeds of $40 million, which was used to pay offer costs, cash redemption of convertible notes and debt repayment amounting to $14 million.
The company has been able to build consumer trust and loyalty, reflected by the ~64% of jobs from repeat customers in H1FY21, compared to ~57% in H1FY20.
The company reported decent performance in H1FY21, with recurring revenue up by ~26% to $25.3 million on the previous corresponding period. The total revenue grew by ~18% to $26.94 million during the same period. The revenue growth has been aided by a structural shift to the online business model and flexible work arrangements. Moreover, the subscription-only model and enhanced subscription offering of products have been driving the MRR growth. Gross margin improved to 87% in H1FY21, from a level of 77% in H1FY20. There was also a significant improvement in EBITDA of the company to $6.9 million, compared to a loss of $0.1 million during the same period under consideration. The group reported its NPAT at $1.5 million during the period. The cash position was at a decent $29.21 million as of 31 December 2020, and the total debt stood at ~$8 million including lease liabilities during the same period end.
H1FY21 Financial Performance (Source: Company Reports)
Demand Driven by Subscription Model: The subscription-only model has witnessed increased traction of demand and has delivered ARPU growth of ~31% in H1FY21 on pcp. It has been reported that new subscribers are joining at higher price points and the existing subscribers are being upgraded to higher price tiers. In the pre-November 2019 phase, the company had a small annual listing fee and the tradie had to pay only when they claimed a job lead. The subscription was monthly based with contract terms of 6-12 months. However, post-November 2019 the company moved to a subscription-only product offering, with improved features and enhanced payment plans. It made a provision of automatic 12-month renewal and removed the lower price tier (<$49) band.
Subscription Plans (Source: Company Reports)
Growth in Subscription Tradie Base: The total subscription of tradies grew by ~12% to 28.8K in H1FY21, when compared to the prior corresponding period. The full-year FY21 forecast growth stands at ~30K, depicting an increase of ~7%. HPG has put market initiatives in place to further accelerate the subscription of tradies and drive revenue in the future. The total tradie ARPU grew by ~31% to $1,483 in H1FY21, driven by the restructuring in the product offerings and their price points, along with new improved features. The FY21 ARPU is forecasted to grow by ~21% to $1,449 on the prior period.
Top 10 Shareholders: The top 10 shareholders together form around 61.06% of the total shareholding, while the top 4 constitute the maximum holding. News Pty. Ltd. and Sajo Hill Pty. Ltd. are holding a maximum stake in the company at 25.68% and 6.10%, respectively, as also highlighted in the chart below:
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
Key Metrics: The company reported a significant improvement in the EBITDA performance to 23% in H1FY21, compared to 2.8% in H1FY20. The current ratio stood at 2.49x during the same period end. It reported an asset to equity ratio of 1.57x and a debt to equity ratio of 0.23x during the same period end.
Growth Profile and Profitability Metrics (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
Key Risks: The company’s success depends on the ability to retain the existing tradies and consumers on its platforms. It has to look to bring in new customers with an increased number of job activities in its marketplace platform and also focus on growing on its subscription revenue from the tradies. HPG is also prone to the risk that its platform may not be able to provide the tradies with enough job leads or connections. This might lead to business attrition and the tradies may engage with the customers directly. The company operates in a sector that is dependent on the overall level of consumer demand for home improvement services. A decline or impact in the economic environment such as the onset of the COVID-19 pandemic might lead to lesser demand among consumers, which might impact the profitability of the company in the medium term.
Outlook: The company has evolved its business model and has reported that the subscription migration has been ahead of its expectations. It has also been looking to increase its tradie base by expanding job channels through key partnerships with the likes of IKEA, NSW Department of Education, to name a few. HPG reported a decent start to the second half of FY21, with January revenues up by ~18% on the prior corresponding period. It expects that the revenue growth in H2FY21 to be similar to H1FY21. It is also planning to re-invest cost savings in brand marketing, acquisition of tradies and enhancement of technology in H2FY21. The company will look to evolve as a SaaS business model going forward with the deployment of Field Service software solutions.
Valuation Methodology: EV/EBITDA 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: As per the company, it had no adverse impact on its business from the recent outbreak of COVID-19. As per ASX, the stock of HPG is trading below its average 52-weeks’ levels of $1.930-$2.850. The stock of HPG gave a negative return of ~13.33% in the past three months and a positive return of ~4.00% in the past one week. On a technical analysis front, the stock of HPG has a support level of ~$1.999 and a resistance level of ~$2.197. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median EV/EBITDA (NTM Trading multiple), considering the decent financial performance and a significant increase in tradie base. For the purpose, have taken peers such as REA Group Limited (ASX: REA), Seek Limited (ASX: SEK), Carsales.Com Limited (ASX: CAR), which comes under Internet Publishing & Broadcasting and Web Search Portals Space. Considering the expected upside in valuation, current trading levels, decent financial performance in H1FY21, improved business model and optimistic guidance, we recommend a ‘Buy’ rating on the stock at the current market price of $2.080, down by 2.804% as on March 30, 2021.
.png)
HPG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.