Company Overview: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of digital workplace software via subscription agreements. LiveTiles’ customers represent a distinct range of sectors which are spread throughout North America, the United Kingdom, Europe, the Middle East and Asia-Pacific. LiveTiles’ products comprise LiveTiles Intelligent Workplace, Page Designer, Bots, Intelligence, SAP Software, MX, Mosaic, Hyperfish, Wizdom, MatchPoint and Condense.


LVT Details
 
 
 

Expanded Reach and Strong Balance Sheet: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of digital workplace software via subscription agreements. LiveTiles’ customers represent a distinct range of sectors which are spread across various places including the United Kingdom, Europe, North America, the Middle East and Asia-Pacific. As on 22 May 2020, the market capitalization of the company stood at ~$212.02 million. During FY19, the company reported a strong financial position with significant growth in revenue and customers. During 1H20, the company reported another solid period of growth in annualized recurring revenue (ARR), revenue, cash receipts and net cash. During the half-year, ARR of the company went up by 7.6x in 2 years and stood at $52.7 million, representing a year on year growth of 130%.

In the same time span, the company broadened its customer reach and reported 1,031 recurring revenue customers, up from 598 in the prior corresponding period. This was mainly driven by organic growth and the acquisition of CYCL. This resulted in average ARR per customer of over $51,000, representing a growth of 33% over the prior year and reflecting the company’s growing presence in the enterprise market. In addition to  LVT’s direct sales channel, the company sells its software through partners to help scale and broaden its reach. The number of transacting partners witnessed an increase of 79% and grew to 199 in 1H20. With the acquisition of Wizdom and CYCL, the company has expanded its customer, revenue and product base and delivered early progress. The company is the clear global market leader with software revenue of over 4x larger than its nearest competitor and has a large and rapidly growing addressable market of around 300,000 organizations. During 1H20, the company reported a strong balance sheet with a cash balance of $46.6 million and no debt. Over the span of 4 years from FY15 to FY19, the company witnessed a CAGR of around 200% in total revenue, reflecting a clear roadmap of operational execution supporting its growth strategy.

The company has recently released its results for the third quarter ended 31 March 2020, wherein it reported significant reductions in costs and is accelerating its efforts to reach breakeven operating cash flow. During the quarter, the company witnessed strong interest from its current and potential clients.

The company broadened its network of alliance partnerships with the purpose of supporting the vision to redefine the intranet, bringing innovative technology to customers and ultimately into the hands of its employees. The management expects to deliver another year of strong customer and revenue growth in FY20, driven by its continued investment into products, partners and sales and marketing channels. 


Strong Growth in Customer Cash Receipts (Source: Company Reports)

Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of LiveTiles Limited. Redenbach (Karl) is the largest shareholder in the company, with a percentage holding of 12.29%. 


Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Cost Management and Financially Stable Balance Sheet: During 1H20, EBITDA margin and a net margin of the company witnessed an improvement over the previous year, indicating that the company is managing its costs well and is capable of converting its top line into the bottom line. In the same time span, Return on Equity of the company went up from the previous half, indicating that the company is well managing the capital of its shareholders and is capable of generating profits internally. During 1H20, current ratio of the company went up to 1.62x, up from 0.94x in 2H19. This indicates that LVT is liquid enough to pay off its current liabilities using its current assets. In the same time span, Asset/Equity ratio of the company went down to 1.68x from 1.82x in 2H19. This indicates that the business is financed with a significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet.


Key Margins (Source: Refinitiv, Thomson Reuters)

Material cost reductions and Growth in ARR: During the quarter ended 31 March 2020, LVT reported another solid quarter with growth in annualized recurring revenue to $55.2 million, up from $52.7 million as at 31 December 2019. ARR went up by 4.9x in the past 2 years and has grown 60% in the last year. In the same time span, the company witnessed material reductions in costs and is well capitalized with cash in hand of over $33 million. The company is speeding up its efforts to reach breakeven operating cash flow and has developed its business model to take up growth opportunities through its multiple channels. During the quarter, customers of the company went up to 1,068 from 1,031 in the previous quarter, and average ARR per customer was over $51,500, reflecting growth of 31% on the pcp. During the quarter, the company saw strong interest from current and potential customers and expects further opportunities from the swift growth of Microsoft Teams. LVT has also received $5.6 million with respect to the research & development tax refunds from the Australian Tax Office.


Growth in Annualized Recurring Revenue (Source: Company Reports)

LiveTiles partners with Linius: The company has recently signed a one-year commercial agreement with Linius Technologies Limited. Under the terms of the partnership, the company will develop a powered user interface for Linius’ hyper-personalized video service, with integrations between LiveTiles’ Intelligence Workplace software and Linius’ video service. The technology will help increase employee engagement, efficiency, and productivity by unlocking the true value that sits within organizations.

Future Expectations and Growth Opportunities: The company is well-positioned during the current uncertain environment and is actively supporting over 1,000 recurring subscription customers. LVT is speeding up to reach a breakeven point for operating cash flow and has made certain developments in its business model to take up growth opportunities through its multiple channels, including direct sales, digital marketing, Microsoft, and partners. The company is also likely to benefit from further growth opportunities from the recent rapid growth of Microsoft Teams.

Despite the substantial social and economic turmoil across all key markets due to the global pandemic, LVT continues to grow strongly with a strong product suite and lower operating expenditure and is focused on direct sales & marketing strategy. Despite the softer market conditions, most of the traditional intranet projects of the company were active. The company is evaluating additional options to reduce its expenditure, the benefit of which is expected to be realized in the September quarter. The company is targeting larger enterprises and is converting its large pipeline generated by the inside sales team in the United States. The company has a substantial expansion opportunity for growth with its existing customers via bundling, cross-sell, and increased penetration.


Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

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

EV/Sales Multiple Based Relative Valuation Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of LVT gave a return of 17.5% in the past one month and is trading below the average of 52-week high and low levels of $0.600 and $0.110, respectively, proffering a decent opportunity for the investors to enter the market. The company is witnessing strong growth with its product suite aligned with the needs of the customers. LVT is likely to be in an enviable position to exploit growth opportunities as the global economy recovers. The company retains a strong balance sheet with no debt and is liquid enough, with no requirement to raise further capital as of now. Considering the current trading levels, decent returns in the past one month, resilient financial position and positive outlook, we have valued the stock using EV/Sales multiple based relative valuation approach and have arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.230, down by 2.128% on 22 May 2020. 

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

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.