Company Overview: A software-as-a-service (SaaS) company, Whispir Limited (ASX: WSP) is engaged in providing communication management systems through a cloud-based platform that automates connections between businesses and people. The company was founded in 2001 and has its business operations spread in three main regions of Asia, ANZ, and North America.

WSP Details

WSP Rides on Digitalisation & Robust Customer Base: The company remains on track to build a strong customer base with a primary focus on its existing customers. The company continues to invest higher to drive innovation, and progress on its five-year growth plan.  During FY21, the company added 171 net new customers, taking its total customer base to a record of 801.

Key Business Aspects in 1QFY22: 

• In 1QFY22, the company reported annualised recurring revenue (ARR) of $56.8 million, which increased ~31.8% year over year, primarily driven by strong customer retention and new customer acquisition.
• During the quarter, the company added 33 net new customers onboarded, taking total customers to 834, depicting a rise of 25.4% year over year. Customer revenue retention for 12-months stood at 117.2%, highlighting strong levels of product satisfaction and underpinning WSP’s future revenue growth.
• Receipt from customers in Q1FY22 increased 7% year over year and stood at $16.3 million, depicting robust underlying business growth.
• On 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 customer gain, targeting the underserved SME and SMB markets. As per the company report, WSP added 7, 13, and 13, net new customers in ANZ, Asia, and North American, respectively, in 1QFY22.
• Net cash used from operations came in at $2.87 million in 1QFY22, which is 45.1% up year over year, owing to its strategies to scale globally. The company exited the quarter with a decent cash balance of $43.9 million.
  

The below picture depicts a continuous growth trajectory in WSP’s ARR and customer count since 1QFY20.

ARR & Customer Base Highlights; Analysis by Kalkine Group             

Key Findings from FY21 Results:

• Rise in Revenues: In FY21, the company’s revenue soared 22% on pcp and came in at $47.7 million. The growth was aided by strengthening position in Australian and New Zealand markets, and the addition of new blue-chip customers across multiple channels.
• Growth in ARR & New Customers: WSP posted growth of 28.5% YoY to $53.6 million in FY21, with recurring revenue constituting 96.7% of total revenue. The company's total new customers rose to 801, increasing 27.1% on FY20.
• Improvement in Net loss & EBITDA: Net loss after interest and tax stood at $9.65 million, compared to $9.87 million reported in FY20. In FY21, EBITDA loss stood at $6.1 million, an improvement from $7.3 million reported in FY20.
• Gross Profit Expansion: In FY21, the company’s gross profit increased 17% year over year and came in at $28.56 million, underpinned by product margin expansion and a higher revenue base.
• Cash & Debt Position: The company exited FY21 with a cash balance of $49.2 million, up from $15.22 million reported at the end of FY20. The company has a strong balance sheet with debt (lease liabilities) amounting to only $2.82 million at the end of FY21, thus helping WSP to attain its long-term objectives, and pursue strategic acquisitions.

Key Metrics: For FY21, the company reported a current ratio of 3.59x, higher than the industry median figure of 1.99x. In FY21, the company recorded cash cycle days of negative 25.7 compared to the industry median figure of negative 4.1 days. Debt-to-Equity ratio in FY21 stood at 0.05x. 

Profitability and Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 53.96% of the total shareholdings, while the top 4 constitute the maximum holding. Wells (Jeromy) is the entity, holding maximum shares in the company at 10.82%. Regal Funds Management Pty. Ltd. is the second-largest shareholder, with a holding of 10.71%, as also highlighted in the chart below:  

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• Loss of key Customers: The company’s financial performance might get impacted by caution in buying behaviour. Also, change in customer preference and supplier concentration risk add to the woes.
• COVID-19 Led Uncertainties: The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions.
• Stiff Competition: The company is exposed to stiff rivalry from competitors developing similar product lines and services.
• Forex Headwinds: WSP faces foreign currency changes due to operations’ exposure to new and multiple geographies (Asia, Australia, and North America).

Outlook: The company remains on track to leverage its channel partnerships with well-known brands to acquire new customers in ANZ, Asia, and North America. In March 2021, the company completed a capital raising of $45.3 million. The capital raising is a good way to strengthen the company’s balance sheet to provide working capital flexibility. In the coming year, WSP expects to accelerate its data-led product roadmap and spend on sales and marketing prospects to aid customer growth and activation. The company continues to expect its FY22 ARR to be in the range of $65.4 million and $70 million, depicting a rise of 22-31% year over year. Further, the company expects FY22 revenue to be between $57.2 million and $60.2 million, depicting an increase of 20-26% year over year. The company is set to hold an AGM on 24 November 2021. 

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: The stock of the company has been corrected by ~20.85% in the past six-months. Currently, the stock is trading below the average of its 52-week high and low levels of $4.51 and $2.07, respectively. 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 upside (in % terms). The company might trade at a slight discount as compared to its peers, considering forex headwinds, customer concentration risk, regulatory concern, COVID-19 led uncertainties, rising expenditure, etc. For the purpose of valuation, peers such as Nearmap Ltd (ASX: NEA), ELMO Software Ltd (ASX: ELO), Bigtincan Holdings Ltd (ASX: BTH), and others have been considered. Considering the above factors, strong ARR growth in 1QFY22, robust customer base, capital raising program, focus on delivering organic growth, decent cash position, encouraging outlook, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.230 as on 5 November 2021, 1:00 PM (GMT+10), Sydney, Eastern Australia.

WSP Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: 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. 

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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