Company Overview: LiveTiles Limited (ASX: LVT) provides workplace software solutions that enables employee collaboration and communications, and drive digital transformation, productivity, and employee engagement in the workplace. It has its operations spread out in the continents of North America, Europe, Asia and Australia, and offers its products to over 1,100 Enterprise customers.
LVT Details
Decent Rise in ARR Aided by Increased Customer Base & Key Wins: LiveTiles Limited (ASX: LVT) is engaged in providing workplace solutions for employee collaboration and helps in increasing workplace productivity. The market capitalisation of the company as on 14 May 2021, stood at ~$155.10 million. The company has recently reported that it has signed a ~$3 million customer contract with United Health Group for a period of 3-year. This agreement is expected to provide a decent push to the revenue of the company going forward.
During Q3FY21, the company reported decent financial performance, despite the impact of the COVID-19 pandemic on the economic environment. It delivered an Annualised Recurring Revenue (ARR) of $66.7 million, on a constant currency basis. ARR growth over a period of 2 years stood at +71%. There has been an uptick in the number of customers to 1,114 during the quarter-end, from a level of 1,068 customers during the previous corresponding period. The average ARR per customer stood at $59.9k. It ended the period with a decent cash position of $16.8 million as of 31 March 2021.
Q3FY21 Financial Performance (Source: Company Reports)
Decent Recurring Revenue Performance: The company has been reporting continued growth in recurring revenue over the past few years. There has been an increasing trend in the average ARR per customer over the past few years on the back of a shift in customer mix towards larger enterprises. This has resulted in increased ARR over the period, despite the impact of the COVID-19 pandemic on the business environment. LVT has witnessed a decent demand for Reach and has reported a ~139% increase in sales pipeline in Q3FY21.
ARR Performance (Source: Company Reports)
Key Wins in Core Geographies: The company recorded a decent Q3FY21, with three substantial government order wins, including two large transportation agencies - Connecticut and Maryland Dept. of Transportation, in the AMERICAS region. It has been selected for multiple RFP's and includes a Fortune 50 global manufacturing company. It has experienced high demand from prospects with heavy frontline worker populations.
It has added 800,000 users to the EMEA pipeline in Q3FY21, and 400,000 new users are set to be live in the fourth quarter of the fiscal. It has also reported that 8 Enterprise level request for proposals are at advanced stages of negotiations. Key strategic wins during the quarter include a border and coast guard agency in Europe and a financial services firm on the UK Stock Exchange.
In the APAC region, the company has signed a major Australian University as its client. It has also signed an important deal with a hospitality organisation in Australia to deploy LiveTiles Reach across the entire firm with more than 4,500 employees. The company provided support to a large Victorian Government Council to go live with their employee experience and has undertaken several other projects to boost the revenue in Q3FY21.
Top 10 Shareholders: The top 10 shareholders together form around 37.34% 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: During H1FY21, the company reported an uptick in EBITDA margin to negative 13.9%, compared to negative 95.2% in the previous corresponding period. ROE of the company stood at negative 30.4% during the period. There has been an improvement in the cash cycle to 79.9 days in H1FY21, from a level of 115.4 days in H1FY20.
Growth Profile and Profitability Metrics (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
Key Risks: The Group is exposed to credit risks with respect to its trade receivables in the geographies of Australia, Asia, North America, Europe, and the Middle East. The company’s exposure to interest rate risk is minimal, as it has no borrowings on its balance sheet. It is also prone to fluctuations in the foreign currency as the Group has its presence in different parts of the world. Being a technology-enabled company, it is also exposed to technological risks and has to look to keep its systems and products updated in order to remain relevant with key trends.
Outlook: The company will continue to focus on disciplined cost management, in order to invest in growth and expand its customer base. It plans to invest in its direct sales and marketing strategy to augment its pipeline and win on deals from large enterprises. It has reported 21 RFP’s in motion in CY2021 and this augurs well for the company. The company plans to capitalise on the disruption brought in by the COVID-19 pandemic and will look to further address the changes in the business landscape by offering products that help to enhance employee productivity and collaboration.
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 19 March 2012, the company has announced that it has been awarded with the ISO27001 certification, which will help the company to speed up its sales. As per ASX, the stock of LVT is trading below its average 52-weeks’ levels of $0.160-$0.305. The stock of LVT gave a negative return of ~26.08% in the past nine months and a negative return of ~20.93% in the past one month. 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 that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the continued growth in average ARR per customer, decent cash position for future strategic investment and increase in the number of customers. For the purpose, we have taken peers such as rhipe Ltd (ASX: RHP), Class Ltd (ASX: CL1), to name a few, which comes under software & services space. Considering the expected upside in valuation and current trading levels, rise in ARR levels, increase in the number of customers, key wins in major geographies and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.170, as on May 14, 2021.
LVT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.
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