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, 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 Customer Base and Growing Addressable Market: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software via subscription agreements in Australia and overseas. As on 19 June 2020, the market capitalization of the company stood at ~$221.04 million. During FY19, the company reported a strong financial position with significant growth in revenue and customers. LVT was also accredited by Microsoft for its workforce to ‘co-sell’ LiveTiles products. During the year, it saw a substantial increase of 71% in the number of paying customers. During 1H20, the company reported a solid period of growth in annualized recurring revenue (ARR), revenue, cash receipts and net cash. During the half-year, ARR of the company was up by 7.6x as compared to that of two years ago and stood at $52.7 million, representing a year on year growth of 130%. In the same time span, Organic growth, and the acquisition of CYCL resulted in the expansion of its customer reach and reported 1,031 recurring revenue customers, up from 598 in the prior corresponding period. This resulted in an average ARR per customer of over $51,000, representing a growth of 33% over the prior year. In addition to the 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. The expanded customer base and broadened reach reflect the growing presence of the company in the enterprise market. 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.

 

During the quarter ended 31 March 2020, the company reported a reduction in its costs base and is making an effort to reach breakeven operating cash flow. During the quarter, the company witnessed strong interest from its current and potential clients. 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. 

Growth ARR Per Customer (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 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.

Key Margins (Source: Refinitiv, Thomson Reuters)

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.

Material cost reductions and Growth in ARR: During the quarter ended 31 March 2020, the company reported growth in annualized recurring revenue to $55.2 million, up from $52.7 million in the previous quarter. ARR has grown 60% in the last year and went up by 4.9x in the past 2 years. 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, LVT reported material reductions in costs and received $5.6 million with respect to the research & development tax refunds from the Australian Tax Office. As at 1 May 2020, LiveTiles Limited increased its cash balance by 14% to $38.5 million. Therefore, the company remains well-capitalized with no requirement to raise further capital to fund operating cash burn. The company realigned its product portfolio into a simpler value proposition and saw an increase in its customer base, which went up to 1,068 from 1,031 in the previous quarter. 

Growth in Annualized Recurring Revenue (Source: Company Reports)

Key Risks: The outbreak of COVID-19 has thrown up both opportunities and challenges in the short-term. Notwithstanding the optimism, the global macroeconomic outlook is highly uncertain and may pose some short-term challenges in terms of sales and decision-making. The main risks arising from its financial instruments are credit risk, liquidity risk, interest rate risk and foreign currency risk. On a geographical basis, the company has credit risk exposures in Australia, Asia, North America, Europe, and the Middle East and is exposed to credit risk for trade receivables. However, the exposure to interest rate risk for the company is minimal given the company has no borrowings. Given the uncertainties in the financial markets, investors are cautioned not to place undue reliance.

What to Expect: LiveTiles Limited has expanded to a truly global footprint and seems well-positioned to flourish. It is focused on simplifying the complex and is hugely energized with the opportunity to collaborate in the new world of remote and work from home. Since the global pandemic, the skyrocketing demand of digital workspace has centered its way for growth. It extended its digital delivery of projects and has delivered ground-breaking workplace solutions. It is ensuring to maintain a strong balance sheet and is prioritizing lower cash burn to establish a firm operating platform for the future.

Despite the current gloomy situation in the market from the global pandemic, there has been no change in long-term strategy or market opportunity for LiveTiles. 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 decent 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: LiveTiles Limited is one of the fastest growing technology companies with a decent medium and long-term outlook. While the global pandemic has negatively impacted the markets, COVID-19 played a global role to accelerate digital workplace software adoption. As per the ASX, the stock of LVT gave a return of 104.17% in the past three months and a return of 6.52% in the last one month. Currently, the stock is trading below the average of its 52-week high and low level of $0.600 and $0.110, respectively, offering a decent opportunity for the investors to enter the market. We have valued the stock using EV/Sales multiple based illustrative relative valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). Considering the attractive trading levels, decent returns in the past one month, opportunity that emanated from COVID-19 scenario with regards to the technology sector, and modest medium and long term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.265, up by 8.163% on 19 June 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.