Integrated Research Limited

IRI Details

Change in Director’s Interest: Integrated Research Limited (ASX: IRI) operates in computer system management product that develops, sell, and manages software for business-critical computing and unified communication and payment networks. Recently, the company’s director Peter John Lloyd has undergone a change of interest in the company and has acquired 10,526 ordinary shares of the company.

H2FY21 and FY21 Financial Highlights:

• The company has recorded a decline in revenue by ~29% to $5 million in FY21 compared to y-o-y. However, there is an improvement in revenue by ~30% to $44.4 million in H2FY21 from $34.1 million in H1FY21, driven by new product launches and sales execution.
• The operating cash flow decreased by 13% to $21.1 million in FY21, compared to $24.2 million in FY20, impacted by COVID-19 and other geopolitical uncertainties.
• The company has reported a robust increase in NPAT in constant currency by ~210% to $9.0 million in H2FY21 against $2.9 million in H1FY21, depicting the success of new cloud solutions during the second half of FY21.
• The period ended with an increased cash balance of $12.1 million as of 30 June 2021 against $9.7 million as of 30 June 2020.

Cash and Cash Equivalent (Source: Analysis by Kalkine Group)

Key Risks:

• Geopolitical Risk- The tension between the countries could cause uncertainty across the industry and can directly impact the company's operations.
• Currency Fluctuations-The translation of offshore revenues at higher exchange rates and foreign currency denominated assets could impact the revenue.

Outlook:

• The company continues to focus on the new offering of cloud-based products to drive long term growth and recurring subscription revenues. In addition, it expects a new cloud solution during the year to position the company for future growth.
• The company is executing a clear plan for FY22 to extend, enhance its subscription revenues and improved free cash flows. In the future, it plans to scale up by expanding in new segments and report high level of ARR for FY23.
• The management is also focused on leveraging the success of new products launched last year. Further, it strategises on-demand generation, new customer acquisition, and retaining its existing customers to drive growth in FY22.

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 IRI is trading below its average 52-weeks' levels of $1.705-$3.890. The stock of IRI gave a negative return of ~13.30% in the past one month and a negative return of ~50.07% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average, considering the COVID-19 uncertainties and a higher debt-to-equity ratio. For the purpose of valuation, peers such as Infomedia Ltd (ASX: IFM), rhipe Ltd (ASX: RHP), Livetiles Ltd (ASX: LVT) have been considered. Considering the current trading levels, indicative upside in valuation, strategic acquisition of SaaS customers, investment in product innovations, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.720, up by 0.584% as on 22 September 2021.

IRI Daily Technical Chart, Data Source: REFINITIV

JCurve Solutions Limited

JCS Details

FY21 Financial Performance: JCurve Solutions Limited (ASX: JCS) engages in enterprise resource planning (ERP) and telecommunications expense management solutions in Australia, New Zealand, and Southeast Asia.

• A decline in Revenue Growth- The company has recorded revenue growth to $10.63 million in FY21, down by 5% from $11.21 million in FY20, impacted due to unearned income of $0.5 million during the year, which is to be complete in FY22.
• Robust EBITA Performance- The company has delivered a robust EBITDA growth of 84% to $1.23 million in FY21, compared to ~$670k in FY20, driven by a reduction in operating costs across the Group.
• Improved Net Tangible Assets- JCS has reported improved net tangible assets per share of 61 cents as of 30 June 2021 vs 0.55 cents as of 30 June 2020.
• Strong Bottom Line Growth- The company has reported a strong profit of ~$152k in FY21 against a loss of ~$298k in FY20.
• Liquidity Position- At the end of the period, the company's cash balance stood at ~$5.10 million as of 30 June 2021.

Gross Margin Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Technology Risk: The company is a technology-focused business and is prone to cybersecurity risk and managing customer data.
• Stiff Competition- The company is exposed to intense competition in the market and is vulnerable to opportunity cost risk.

Outlook:

• The company is focused on developing the Riyo Service Management Platform and expanding its customer base in two geographical segments, i.e., Australia and New Zealand.
• It is strategising to improve its digital marketing services with the recent acquisition of Creative Quest.
• JCS expects profitability to grow in the Asia Pacific region and remains focused on increasing shareholder return going forward.

Stock Recommendation: The stock of JCS is trading above its average 52-weeks' levels of $0.023-$0.070. The stock of JCS gave a positive return of ~100% in the past nine months and a negative return of ~8.19% in the past one month. On a TTM basis, the stock of JCS is trading at a Price/Book multiple of 3.6x, lower than the industry average (Software & IT Services) of 10.5x, thus seems undervalued. Considering the current trading levels and valuation on a TTM basis, decent cash position, strong bottom-line growth, a higher Asset Turnover ratio over the industry and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.054, down by ~3.572% as on 22 September 2021.

JCS 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 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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