ELMO Software Limited

ELO Details

1HFY22 Updates: ELMO Software Limited (ASX: ELO) is a cloud-based solutions (Software-as-a-Service (SaaS)) provider to small businesses and midmarket organizations. The company’s annual recurring revenue grew to $98.3 million representing annualized organic growth of 35% as compared to 30 June 2021. The total revenue rose to $43.1 million, up by 41% Y-o-Y.

• With the ~63% growth to $56.0 million in cash receipts, the company closed its accounts with the cash balance $58.4 million as of 31^st December 2021.

Key Metrics (Source: Analysis by Kalkine Group)

Key Risks: The operational and financial performance of the company could be affected by the rising market share of peers in the industry. The company’s business could also be impacted by the extreme change in technology, which could change the way of doing business.

Outlook:

• For FY22, the company anticipates its ARR to be in the range of $107 million -$113 million for FY22. For the company’s growth strategy, its focus revolves around segment expansion, module expansion and geographic expansion.
• With the hopes of ramping up the ANZ & UK activities, ELO also upgraded its guidance for revenue to be in the range of $91 million-$96 million and EBITDA of between $1.5 -$6.5 million.

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 company is trading below its 52-week low-high average of$ 3.340 - $5.860, respectively. The stock of ELO has been corrected by ~24.74% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 uncertainties and negative net margins. For the purpose of valuation, peers such as Nearmap Ltd (ASX: NEA), Readytech Holdings Ltd (ASX: RDY), FINEOS Corporation Holdings PLC (ASX: FCL), and others have been considered. Considering the expected upside in valuation, growing revenue, conversion of negative EBITDA to positive, increasing ARR, decent performance in mid-market business, upgradation in outlook, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.570 as on 17 March 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ELO Daily Technical Chart, Data Source: REFINITIV 

Airtasker Limited

ART Details

Quarterly Rebalance: Airtasker Limited (ASX: ART) provides an online community marketplace platform to connects people are in need to outsourcing of tasks and services and the service providers. As per 4^th March 2022 announcement, ART was added to all ordinaries index, effective from 21^st March 2022.

1HFY22 Key Metrics:

• ART’s GMV (Gross Marketplace Volume) reflected a growth of ~15.5% Y-o-Y in 1HFY22, mainly owing to customer acquisition, which grew by ~8.9% Y-o-Y in December. While the first quarter was affected by COVID-19 related lockdowns, its second quarter showed a sharp rebound in the second quarter and saw Q2 GMV up 39.0% qoq to $48.6 million.
• With the cash receipts of ~$15.7 million, its cash outflow from operating activities increased and was reported as -$8.7 million for 1HFY22. The cash balance at the end of 31^st December 2021 stood as ~$34.0 million versus ~$14.7 million on pcp basis.

Key Matrics (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 and Omicron: Due to the new variant Omicron of COVID19, the company is bound to face the risks associated with its impacts.
• Gap in Demand & Supply: The gap between the quantity and quality of demand and supply of the workforce might affect company’s popularity and usage, as its business is dependent on the provision of skilled workers to the people who are in need.
• Technology Risks: Running a business online has its challenges related to the technology used and their regular upgradation. Failure to which or glitches in the system could lead to operational risks, thereby affecting its revenue.

Outlook:  Based on strong growth trajectory and increased marketing investment, ART upgraded its H2FY22 GMV guidance to ~$107-$110 million representing full year FY22 GMV of $191-194 million.

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

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 ~44.02% in the past nine months. Currently, the stock is trading lower than the average of its 52-week low and high levels of $0.605 and $1.965, respectively. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the seasonal impact internationally and potential lockdowns due to Omicron, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like AerCap Holdings NV (ASX: AER), Carsales.Com Ltd (ASX: CAR), and Domain Holdings Australia Ltd (ASX: DHG) have been considered. Considering the company’s budget on expansion expenditure and its upgraded guidance for FY22, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $0.655, up by ~1.550%, as on 17 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ART 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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