Spirit Technology Solutions Ltd

ST1 Details

Performance Update: Spirit Technology Solutions Ltd (ASX: ST1) is engaged in information technology (IT) and telecommunications services like cybersecurity, networking, disaster recovery, and online backup. The company also provides Internet services to apartments, green fields to students and businesses. The market capitalisation of the company stood at $195.68 million as on 4 June 2021. As per a recent market update, the company has recorded a hike in inbound sales for April by 75% to 1596 leads, compared to the month of March. The company has posted robust growth in Recurring and S&P revenue by 150% to $35.7 million in FY21 (Jan to April) compared to pcp. Moreover, the company has recorded an increase in recurring sales of Total Contract Value (TCV) by 145% to $11.9 million, compared to pcp. It reported a healthy balance sheet with ~$23 million of cash and available debt as of 30 April 2021.  

FY21 (Jan to April) Financial Performance (Source: Company Reports)

Change in Director Interest: As per a recent update, the company’s director James Joughin has undergone a change of interest in the company and acquired 71,431 fully paid ordinary shares.

Outlook: The company is actively executing a National Brand Campaign, which could positively provide sales leads. The company looks forward to expand the SMB distribution through Nexgen salesforce going forward. Due to the surge in demand and consistent growth in revenue growth for ten consecutive quarters, the company has estimated an optimistic outlook and growth in Q4FY21 and continued to Q1 FY22.

Key Risks: Due to COVID-19 disruption, the government did not support entities through subsidiaries. The company's line of business also exposes it to technology risk.   

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: During the period FY21 (Jan to April), the company has recorded pending service delivery at $10.4 million and IT Services & Technology Sales at $6.1 million. The stock of ST1 is trading below its average 52-weeks' levels of $0.185-$0.450. The stock of ST1 gave a positive return of ~40.47% in the past one year and a negative return of ~1.66% in the past one week. 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 average EV/Sales (NTM Trading multiple), considering the lower debt-to-equity ratio, sustainable growth and recent Teleco acquisition. For this purpose, we have taken peers such as 5G Networks Ltd (ASX: 5GN), Aussie Broadband Ltd (ASX: ABB), to name a few. Considering the current trading levels and expected upside in valuation levels, National expansion, brand integrations, optimistic outlook, growth in key metrics and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.310, up by 3.333% as on 4 June, 2021.

ST1 Daily Technical Chart, Data Source: REFINITIV

Wide Open Agriculture Ltd

WOA Details 

Business Update: Wide Open Agriculture Ltd (ASX: WOA) serves regenerative food and farming that offers grass-fed, lamb and regenerative beef through a retail and online platform and engaged in hemps production, commercialising oat milk and lupin protein technology. The market capitalisation of the company stood at $98.29 million as of 4 June 2021. As per a recent announcement, WOA Modified Lupin Protein (MLP) concentrate is used to develop early-stage food and drink prototypes, extensive research led by Dr Stuart Johnson, Curtin University and food scientist and co-inventor of the lupin technology.

Q3FY21 Financial Performance: During the quarter, the company has recorded revenue growth by 15% to $1,135,950 when compared to Q2FY21, representing a 196% increase compared to pcp. Moreover, WOA reported a significant growth in DCF online by 20% on the back of expanding regenerative product lines. During the quarter, the company has spent $33,000 in R&D to develop lupin protein. The cash position of the company stood at $12.8 million as of 31 March 2021. 

Q3FY21 Cashflow from Operating activities (Source: Company Reports)

Outlook: The company is looking for grant of potential funds from the government to advance the lupin protein development project. The company is focused on investing in inventory, planning and logistics of the OatUP launch. 

Key Risk: Any delay in research and providing clinical data could impact the company's upcoming product. Due to COVID-19 disruption, the foodservice sector, including restaurants and cafes, was closed, affecting the company's sales in the process.

Stock Recommendations: As per a recent announcement, the company's encouraging results from nutritional analyses emphasised lupin protein concentrate to create food and beverage products for large and growing plant-based protein market. The stock of WOA is trading below its average 52-weeks' levels of $0.345-$1.850. The stock of WOA gave a positive return of ~2.87% in the past one month and a negative return of ~15.16% in the past six months. On a technical analysis front, the stock of WOA has a support level of ~$0.81 and a resistance level of ~$0.971. Considering the current trading levels, optimistic results from nutritional analysis and impressive top-line growth, we recommend a ‘Hold’ rating on the stock at the current market price of $0.895, down by 2.186% as on 4 June 2021.

WOA 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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