Company Overview: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of digital workplace software via subscription agreements. It is a leading player in intranet and workplace technology software and helps in the enhancement of employee productivity and communications in the modern workplace. It serves over 1,000 enterprise customers and has its operations spread out in North America, Europe, Asia and Australia.

LVT Details

Decent Rise in ARR and Key Clients Aiding Top-Line Growth: LiveTiles Limited (ASX: LVT) develops and sales enterprise software. The market capitalisation of the company as on 19 March 2021, stood at ~$ 205.28 million. As per a recent update, the company has been awarded the ISO27001 certification, recognising its role in information security management. The certification will help the company to accelerate on its sales process. Besides, it helps the company to address the concern about information security management as part of the procurement process. It will also help in the assurance of potential customers, aiding sales pitch in the process, as well as reassure its existing customers of its commitment to follow the best industry practices.

During H1FY21, the company continued its growth in ARR and reached at $64.7 million on a constant currency basis as on 31 December 2020. This was an increase of ~23% over the same prior period. It reported a revenue of $20.5 million during the period, an increase of ~13% on the prior corresponding period. There was also ~84% improvement on the adjusted EBITDA to negative $2.3 million in H1FY21. The total operating expenditure improved by ~27% to $23 million in H1FY21, from $31.7 million in H1FY20. The number of customers increased to 1,132 during the period end, which reflects addition of 101 new customers on the pcp. The number of LiveTiles transacting partners also grew to 226 from 199 in the same period under consideration. The cash position of the company as on 31 December 2020 stood at $19.4 million.

H1FY21 Financial Performance (Source: Company Reports)

Continued Growth in ARR: The company has reported a decent rise in average ARR per customer with a CAGR growth of ~66% for a four-year period to December 2020. The revenue growth has been aided by the addition of new enterprise-based customers in the business mix and increased penetration of existing customers with cross-selling and bundling of products. The decent growth in ARR has also been supported by strong organic growth, as well as through acquisitions and product integrations. The launch of LiveTiles Reach accounted for more than 75% of the new pipeline as on 31 December 2020.

Growth in ARR (Source: Company Reports)

Decent Activity Across Key Regions: The company has witnessed key wins in the Americas region, which includes a global retailer and a financial services company. It has also signed a three-year contract with United Healthcare Group having 300,000 employees on board and having a contract value of ~$3 million. This segment accounted for 19% of the total ARR as on December 2020. LivesTiles Reach has seen increased traction in demand from the EMEA region across regional partners and existing customers. There has been decent activity across the partner ecosystem with the agreement of 24 EMEA partners to co-sell and market plans. Key strategic wins during the period include business in a leading Swiss Insurance Company, a hospital in the Netherlands and a multinational online credit rating provider in the UK. The business from this segment formed 52% of the total ARR. In the APAC region, it has partnered with Microsoft on multiple opportunities with the Federal Government. It has also created strategic alliances with Canva and Linius.

Top 10 Shareholders: The top 10 shareholders together form around 35.92% of the total shareholding, while the top 4 constitute the maximum holding. Redenbach (Karl)  and Nguyen-Brown (Peter)  are holding a maximum stake in the company at 9.99% and 8.59%, respectively, as also highlighted in the chart below:

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

Key Metrics: LVT reported a current ratio of 0.99x in H1FY21 It reported an improvement in the cash cycle days to 79.9 days in H1FY21, compared to 115.4 days in the previous corresponding period. The debt to equity ratio of the company stood at 0.06x during the period. The company had a negligible debt of $3.5 million on the balance sheet as on 30 December 2020.

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

Key Risks: The Group is prone to credit risk exposures in Australia, Asia, North America, Europe and the Middle East, on a geographical basis. It is also exposed to interest rate risk and changes in the currency value.  Currency risks arise as the company is involved in transaction exposures due to the nature of its operations on a global scale. LVT operates in a sector where there is stiff competition for client projects and business. As such, it has to keep itself updated with the latest technology trends and processes in order to win key deals and drive ARR in the long run.

Outlook:  As per Microsoft, the Employee Experience Platform (EXP) market is estimated to be around ~US$300 billion. The company believes it is well-positioned to capitalise on these trends and gain a share of the market size going forward. Moreover, the impact of the COVID-19 pandemic has made organisations to work remotely and look out for viable enterprise options to keep the employees engaged with seamless communication and enhanced productivity. LVT will continue to focus on a disciplined cost management approach in order to invest and innovate further, and expand its customer base.

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:  On 17 February 2021, the company has announced that it has signed a multi-million deal with a US-based healthcare company for a minimum term of three years. The contract value is at $3 million with the scope to grow up to $12.2 million over the life of the project. As per ASX, the stock of LVT is trading above its average 52-weeks’ levels of $0.110-$0.305. The stock of LVT gave a positive return of ~9.52% in the past six months and a positive return of ~2.22% in the past one week. On a technical analysis front, the stock of LVT has a support level of ~$0.207 and a resistance level of ~$0.301. 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 the company can trade at a slight premium to its peer median EV/Sales (NTM Trading multiple), considering the decent business activity across all the key regions and on the back of strategic contract wins. For the purpose, have taken peers such as rhipe Limited (ASX: RHP), Class Limited (ASX: CL1), Catapult Group International Limited (ASX: CAT), to name a few. Considering the expected upside in valuation, decent financial performance in H1FY21, robust growth in ARR and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.230, up by 2.222% as on March 19, 2021.

LVT 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.