Company Overview: Whispir Limited (ASX: WSP) is a worldwide scalable SaaS company that was founded in 2001 and is engaged in offering a communications workflow platform that automates communications between organisations and people. The company has its business operations spread in three main regions of Asia, ANZ, and North America.

WSP Details

Geographical Expansion & Digitalisation to Aid WSP: Whispir Limited (ASX: WSP) is a global scale software-as-a-service (SaaS) company, which provides a communications workflow platform that automates interactions between businesses and people. As on 14 May 2021, the market capitalisation of the company stood at ~$293.4 million.

Demand for Internet of Things, artificial intelligence, and Virtual/Augmented Reality is expected to grow across industries in the days ahead. For a matter of fact, the COVID-19 pandemic only rushed up the process of digital transformation, which now puts employees in a time of remote working. Digital transformation aids to streamline and assimilates all business operations along with saving time, effort, and resources by substituting outdated processes with automation. This, in turn, lowers the rate of inaccuracies made by users.

Further, digitalisation also reduces risks that occur during marketplace instability or in a geopolitical ecosystem disruption. Automation & digitisation trends haves offered WSP with short and long-term growth opportunities to enhance efficiency and productivity at the same time. This scenario boosts the digital transformation market. As per the company report, the worldwide digital transformation market size stood at US$336 billion in 2020. The same is expected to witness a CAGR of 22.5% from 2020 to 2027. Given such situation, WSP is likely to benefit from this increasing digitalisation trend in the future.

In Q3FY21, the company remained on track to leverage its channel partnerships with well-known brands to acquire new customers in ANZ, Asia and North America. Notably, in Australia, WSP reintroduced its business partnership deal with Telstra Corporation Limited (Telstra) for a further period of three years. In Asia, the company is strengthening its foothold with Indosat Ooredoo partnership, an Indonesian telecommunications company. Special mention goes to North American region, where the company has its go-to-market plans underway with NASDAQ-listed 8x8 and is establishing its foothold in the Amazon Web Services (AWS) ecosystem. The company has also built its strategic alliances with Engaging Local Government Leaders (ELGL), a key North American local government association. These alliances boost WSP’s digital marketing campaigns, aiming underserved SME and SMB organisations with revenues varying from US$10 million to US$1 billion.

Key Customers (Source: Company Reports)

The company remains on track to build a strong customer base with a primary focus on its existing customers, which is a key growth driver for revenue growth. In addition, the company’s extensive product offering is likely to provide more prospects to secure customers across key regions. In 3QFY21, the company has total of 750 customers (including 11 new customers in North America), an increase of 192 customers year over year. Notably, during the quarter, the company witnessed growth in its net new customers with 43 onboarded.

3QFY21 Key Business Update: Coming to the company’s 3QFY21 performance, it has provided a robust result with ARR and customer numbers, all growing firmly on a year over year basis. The results were primarily driven by existing customers, with annualised recurring revenue (ARR) amounting to $50.3 million, which increased ~20.3% year over year. In Q3FY21, cash investment in research and development stood at $2.3 million, bringing the total year-to-date investment to $6.9 million, owing to its artificial intelligence and machine learning functionality.

Coming to the geographical performance, the company’s ANZ business continued to perform very well. The company is successfully implementing its strategies to acquire new customers and enhance platform usage by its existing customer base in this region. Further, the company’s North American go-to-market strategy, has also delivered new customers gain, targeting the underserved SME and SMB markets. As per the company report, WSP’s North American TAM is expected to be US$4.74 billion by 2022.

Key Highlights (Source: Company Reports)

Capital Raising Program: As per a recent update, the company has raised A$610,162.50 via a Share Purchase Plan (SPP) to eligible shareholders. Previously, the company successfully completed a Placement of A$45.3 million to new and existing institutional investors at a bid price of A$3.75 per share. The Placement proceeds enable WSP to accelerate its growth strategy, which includes product roadmap, enhancing value of new and existing customer in ANZ and Asia along with increased investment in North American market expansion. The capital raising is a good way to strengthen the company’s balance sheet to provide working capital flexibility.

Key Metrics, Balance Sheet and Decent Liquidity: The company has built a decent balance sheet position with cash and cash equivalents of $51.7 million as at 31 March 2021. Capital raising is likely to help the company to achieve its goal and organic growth initiatives. In 3QFY21, cash receipts from customers stood at $10.9 million, depicting an increase of 22.5% year over year. Notably, net cash used in operating activities in 3QFY21 came in at $1.2 million. The company’s healthy balance sheet and skilled management team along with its long-term nature of customer relationships, place WSP for considerable long-term growth. For 1HFY21, the company reported EBITDA margin of 1.6%, higher than the year-ago figure of -25.3%. Net margins and operating margins also improved year over year in 1HFY21.

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

Top 10 Shareholders: The top 10 shareholders together form around 54.79% of the total shareholding, while the top 4 constitutes the maximum holding. Wells (Jeromy) is the entity, holding maximum shares in the company at 11.57%. Pie Funds Management Limited is the second-largest shareholder, with a holding of 8.11%, as also highlighted in the chart below: 

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

Risk Analysis: As the company expands its business into different geographies, it faces the risks of compliances with regards to the business values and cultures of that particular region. Also, the company’s revenues are heavily dependent on retaining its key customers. This implies that customer concentration risk is higher for the company. Stiff competition in the markets where WSP operates, COVID-19 led disruptions, and regulatory concerns may dampen financial performance. Further, foreign currency fluctuation risks, rising expenditure and government restrictions add to the woes.

Outlook: The company remains on track to implement its long-term growth strategy, enhance customer numbers, increase platform usage, and revenue in ANZ, Asia and North America. The company’s healthy balance sheet aids the company to strengthen its foothold in the international expansion to support its longer-term business objectives of generating ~50% of total group revenue internationally by the end of FY23. The company is increasing its investment in technology and headcount in Asia and North America, given the depth of its ANZ business, in order to drive customer acquisition and product-controlled growth. The company continues to expect its FY21 ARR to be in the range of $53.5 million and $55.3 million, depicting a rise of 27-33% year over year. Further, the company expects FY21 revenue to be between $49 million and $51 million, depicting an increase of 25-30% year over year.

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: Over the last six months, the stock went up by ~26.37%. The stock made a 52-week low and high of $1.850 and $5.24, respectively. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company might trade at a slight discount to its peer average, considering forex headwinds, customer concentration risk, regulatory concern, and COVID-19 led uncertainties. We have taken peers like Nearmap Ltd (ASX: NEA), Nitro Software Ltd (ASX: NTO), to name a few. Considering the above factors, strong ARR growth in 3QFY21, robust customer base, capital raising program, focus on delivering organic growth, decent cash position and encouraging outlook, we give a “Buy” recommendation on the stock at the current market price of $2.40, down by 4.383% on 14 May 2021. 

WSP 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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