Company Overview: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of employee experience software through cloud-based platform offerings. It helps organisations to drive their business through the facilitation of software solutions that enable collaboration and deepen employee engagement. It has its operations spread out in North America, Europe, Asia and Australia and services over 1,100 Enterprise clients.

LVT Details

Decent Growth in Revenue Aided by Increase in ARR & Subscriber Base: The company has continued to witness increased traction in growth in its key business metrics despite the presence of the ongoing business volatility due to the COVID-19 pandemic.

Look at FY21 Performance:

LVT delivered impressive performance during the year with growth in ARR, operating revenue and delivered an improved EBITDA.

• ARR increased by over 17% to $62.8 million in FY21, when compared to FY20.
• Operating revenue increased by over 19% to $44.98 million in FY21, driven by subscriber growth across all markets.
• There was a significant improvement in the underlying EBITDA by ~91% to negative $1.1 million in FY21, compared to FY20 levels.
• Cash receipts grew by over 26% to $51.8 million in FY21.
• It ended the period with a cash balance of $16.8 million as of 30 June 2021.

Increasing Trend in Revenue (Source: Analysis by Kalkine Group)

Shift Towards Large Contracts:

The company reported ARR per customer at $58.3k, reflecting a CAGR of ~57% in the past five years. The growth has been aided by a continued shift towards larger based contracts. ARR grew at a 5-year CAGR of ~129% to $62.8 million in FY21.               

Growth in Licenses:

• Licensed users grew by over ~48% to 2.3 million in FY21. The growth was aided by Mobile App (Reach), which grew by over ~1,211% in the past 12 months.
• The company’s ability to offer complete Employee Experience Solutions resulted in major tender wins with the likes of United Health Care and Nestle.

Top 10 Shareholders: The top 10 shareholders together form around 37.28% 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 9.97% and 8.57%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported an improvement in the asset turnover ratio to 0.17x in H1FY21, compared to 0.14x in the prior half. Current ratio stood at 0.99x in H1FY21, compared to the industry median of 1.96x. There has been an improvement in the cash cycle to 79.9 days in H1FY21, from 115.4 days in H1FY20. Debt-to-equity ratio was at 0.06x in H1FY21, compared to the industry median of 0.07x.

Turnover Metrics and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Credit Risk: The company has credit risk exposures in Australia, Asia, North America and Europe and the Middle East, with trade and receivables from its clients.
• Financial Risk: It is prone to risk arising out of its financial instruments like liquidity risk, interest risk and foreign currency risk.
• Technology Risk: The Group’s line of business makes it prone to the risk of any technological failure in terms of its products & solutions.

Outlook: In view of the COVID-19 pandemic, the company will continue to focus on prudent cost management measures. It will also focus on leveraging its operating model for better efficiencies and to maximise commercial opportunities. It has conducted a strategic review of its operations and has come up with a Premiership Plan, which has commenced in Q4FY21 and will continue throughout FY22. This will help in positioning the go-to-market strategy of the company and also help in simplifying LiveTiles’ product portfolio.

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

Source: 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 2 July 2021, the company has announced that it has signed a licensing deal with Nestle, under which LVT will provide an Employee Experience solution across their global workforce in a three-year deal valued at $2.1 million. As per ASX, the stock of LVT is trading below its average 52-weeks’ levels of $0.142-$0.305.   The stock of LVT gave a positive return of ~3.33% in the past one month and a negative return of ~8.82% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering the net losses, sector-specific risks and decrease in liquidity position. For the purpose of valuation, few peers like rhipe Ltd (ASX: RHP), Over The Wire Holdings Ltd (ASX: OTW), Vista Group International Ltd (ASX: VGL) have been considered. Considering the expected upside in valuation & current trading levels, growth in ARR, decent increase in operating revenue, improved underlying EBITDA, growth initiatives and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.150, down by 3.226% as on 27 August 2021.

LVT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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