2 ASX Stocks under Investors’ Radar - RAP, SZL

Resapp Health Limited (ASX: RAP)

RAP provides digital solutions to diagnose and manage respiratory diseases. The company’s platform can be integrated with smartphones to identify aggravations in patients with asthma or COPD. RAP holds a market capitalization of $72.17 million as of March 23, 2022.

Financial and Operational Updates: As announced on March 22, 2022, the company’s ResApp screening test detected COVID in 92% of people with infection. The test uses machine learning to analyse the sound of the patient’s cough through smartphones.  For this reason, RAP was placed under a trading halt from 17^th March to  21^st March 2022. On February 14, 2022, RAP signed a two-year agreement with Health Teams Pty Ltd to use ResAppDX on its telehealth platform and in-room patient consultations. In H1FY22 results, RAP posted a 75% surge in revenue reaching $80.9k. Due to sizable R&D expenses and investment in marketing and administration, it had posted a net loss of $3.63 million as compared to a net loss of $3.13 million in the prior year. It had closed the period with a cash balance of $3.37 million as of December 31, 2021 (vs. $6.59 million as of June 30, 2021).

Technical Analysis: On the daily chart, RAP stock prices are trading below the horizontal trend line resistance level and facing the resistance of the trendline. Moreover, the momentum oscillator RSI (14-period) is trading at ~63.708 level, showing a negative sign. However, the prices are trading above the trend-following indicator 21-period SMA, which may act as a support zone. An important support level for the stock is placed at AUD 0.065 while the key resistance level is placed at 0.105.

After considering a spurt in expenses due to which its net losses widened and a material decline in the cash balance, and current trading levels, a ‘Watch’ stance is suggested. The stock was analyzed as per the closing price of AUD 0.080 per share, as of 23^rd March 2022, down ~4.762%.

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

RAP Daily Technical Chart, Data Source: REFINITIV 

Sezzle Inc. (ASX: SZL)

SZL is a Buy Now Pay Later (BNPL) provider. Its platform facilities payment between consumers and retailers. The company’s BNPL platform covers an array of product categories including fashion accessories, activewear, shoes, swimwear, beauty, cosmetics, home, and electronic products, and so on. SZL holds a market capitalization of $287.19 million as of March 23, 2022.

Recent Financial and Operational Highlights: On March 10, 2022, SZL mentioned that it will trim down ~20% of the workforce in North America and is likely to incur a one-time cash charge of US$0.5 million to be recorded in FY22. It aims to realize annualized cash savings of US$10 million from the workforce reduction. SZL was removed from S&P/ASX 300 Index, effective from March 22, 2022. On February 28, 2022, Z1P acquired ~98.36 million shares in SZL, representing voting rights of 49.54%. As per the transaction, SZL shareholders are entitled to receive 0.98 Z1P shares for every share they own in SZL. This represents the SZL’s implied value of ~A$491 million. The transaction is expected to be earnings accretive in FY24.

Technical Analysis: On the daily chart, SZL stock prices are trading above the downward sloping trend line support level and taking the support of the same. Moreover, the momentum oscillator RSI (14-period) is trading at ~41.70 level and formed a positive divergence, indicating the possibility of a rebound in the price. However, the prices are trading below the trend-following indicator 21-period SMA, which may act as a resistance zone. An important support level for the stock is placed at AUD 1.26 while the key resistance level is placed at 1.74.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation: The stock of SZL just recovered from its 52-week low price of $1.290. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of high single-digit (in % terms). The company can trade at a slight premium to its peers, considering the workforce reduction plans. For the purpose of valuation, few peers such as Laybuy Holdings Ltd. (ASX: LBY), Splitit Ltd. (ASX: SPT), SmartPay Holdings Ltd. (ASX: SMP), and others have been considered. Considering the potential in the BNPL space, proposed merger with Z1P, cost savings following the workforce reduction program, upside indicated by the valuation, current trading levels, and key risks associated with the business, we suggest investors to ‘Hold’ the stock at the closing market price of $1.485, up ~5.693% as on 23 March 2022.

SZL Daily Technical Chart, Data Source: REFINITIV 

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 for 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 is 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 the 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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