Adveritas Limited

AV1 Details

Adveritas Limited (ASX: AV1) was incorporated in 2021 and based out of Bentley, Australia. The company is engaged in providing digital advertising fraud prevention services through its software applications across Australia and globally.

Rapid Increase in Customer Growth: Adveritas recorded an exorbitant growth in annualised revenue of 132%, to $0.35 million in the June 2021 quarter compared to the $0.15 million in the March 2021 quarter. The stability of the revenue can be witnessed further as it's coming from both the enterprise and mid-market customer segments. The unique offering of the company through ‘freemium’ subscription, clocked 23% growth resulting in over 2,600 customers, through which Averitas can cross-sell its products.

Subscriber Growth (Source: Company Reports)

Financial Highlights for 31^st March 2021- The company reported an increase of 42% in the paying customers to 170 as compared to 1H FY21. The latest contracts signed across Asia, North America and Europe helped the company to earn $0.19 million in annualized revenues. To further manage the operations and growth plans, the group maintained a strong cash balance of $5.6 million with no debt in its books.

Capital Raising Plans: There are 55.5 million options expiring in October 2021, each with an exercise price of $0.10. This helps AV1 to boost its cash balance by ~$5.5 million to meet its cost of operations and expansions in different geographies.

Key Risks:

Adveritas is evolving through expansionary plans and offering free services at various levels, and the decline in the conversion rate to the paid services is impacting the company's revenue forecast in the near term. With the advent of various technologies, the company has to invest a lot in Research & Development and at times have to write off the expenses once the technology is obsolete.

Outlook:

Globally the losses incurred in 2019 from the ad fraud were $42 billion, which gives Adveritas the scope to expand in this growing market. The company recently hired Matt Sutton as Chief Revenue Officer in Jan 2021, to expand across the various geographies. Further, the company is having projects in the pipeline across gaming, cryptocurrency, insurance and other retail verticals which will boost its growth in the upcoming quarters.

Stock Recommendation:

The stock of AV1 gave a return of ~-21.15% in the last three months and a return of ~-47.43% in the last six months. The stock is trading below the average of the 52-week low price of $0.076 and the 52-week high price of $0.225, implying accumulation opportunity. On a TTM basis, the stock of AV1 is trading at an EV/Sales multiple of 29.8x compared to the Industry Average of 44.5x (Software and IT Services), indicating undervaluation. Considering the improved order book, strong growth in customer addition, healthy cash balance, the current trading levels, we recommend a “Speculative Buy” on the stock at the closing price of $0.1025, up by 2.50% as of 2^nd July 2021.

AVI Daily Technical Chart, Data Source: REFINITIV

Note: The green color line represents RSI (14-period). The purple color line indicates 12-period SMA and the yellow lines are resistance and support levels. 

HRL Holdings Limited

HRL Details

HRL Holdings Limited (ASX: HRL) was incorporated in 2006 and based out of Brisbane, Australia. The company is engaged in providing various laboratory and environmental services in Australia and New Zealand for hazardous materials management, property contamination testing, etc.

Expansion into Water Quality Treatment: HRL Holdings recently announced to acquire Water Testing Hawkes Bay, which is into the bacteriological water testing and analysis laboratories, by acquiring 100% of its share capital for NZD $650,000. This acquisition will provide stable revenues up to 80%, which are coming from the local government authorities and such contracts usually last long.

Financial Highlights for Q3FY21: The company reported revenues of $8.8 million with an underlying EBITDA of $2.0 million for the quarter ended 31^st March 2021.  

Financial Highlights for 1HFY 21: The revenues grew modestly over 0.40% to $16.4 million in 1H FY21 vs $16.28 million for 1H FY20. The operational efficiency company attained can be witnessed from the strong underlying EBITDA growth of 14.8% of $3.53 million vs $3.08 million on 1H FY20, along with the cash flows generated from operations of $3.86 million. The key highlight is the statutory profit after tax of $0.46 million vs the statutory loss of $2.73 million in 1H FY20. 

Financial Performance (Source: Company Report)

Key Risks:

HRL Holding is facing foreign exchange risks as its revenues are coming from other countries too.  Ccompetitive technology drives markets. With every new technology, the company takes a lot of writing down on the current one to adopt the latest one.

Outlook:

The company gave the guidance for FY21 underlying EBITDA of $7.3 million, which is in line with the analyst expectations. The acquisitions done are also giving the stability in revenues, which will be a strong catalyst to perform as per the forecast and outlook shared by the management.

Stock Recommendation:

The stock of HRL gave a return of ~+9.10% in the last three months and a return of ~-14.29% in the last six months. The stock is trading slightly below the average of the 52-week low price of $0.096 and the 52-week high price of $0.145. On a TTM basis, the stock of HRL is trading at an EV/Sales multiple of 1.7x compared to the Industry Median of 2.9x (Profesional & Commerical Services), indicating undervaluation. Considering the recent acquisitions, stable revenues, healthy cash balance, and the current trading levels, we recommend a “Speculative Buy” rating on the stock at the closing price of $0.120, up by 4.347% as of 2^nd July 2021.

HRL Daily Technical Chart, Data Source: REFINITIV

Note: The green color line in the chart indicates 12-period SMA and the purple color line represents RSI (14-period). The yellow lines are resistance and support levels.

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.

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