ELMO Software Limited

ELO Details

Launch of COVIDsecure: ELMO Software Limited (ASX: ELO) provides cloud-based payroll, human resources (HR), and expense management solutions globally for small and mid-market businesses. On 6 September 2021, ELMO launched COVIDsecure, an in-house developed new module for employers to maintain an automated record of their employees' COVID testing and vaccination status. The solution will help businesses reopen premises safely after lockdowns and strengthens company’s offering to its customers.

Issue of Shares: On 30 August 2021, ELO issued 91,023 ordinary fully paid shares at $2.5066 due to the exercise of options or conversion of options to shares. 

FY21 Result Highlights:

• Revenue Growth: ELO posted revenue growth to $69.1 million, up by 38.1% YoY in FY21 due to Annual Recurring Revenue (ARR) growth. The rise in ARR is driven by businesses' remote-based working, leading to the adoption of cloud-based HR technology to aid in workforce management.
• Rise in Underlying EBITDA: The underlying EBITDA improved to $0.4 million, up by $3.3 million compared to the prior period loss of $2.9 million because of revenue growth and higher operating cost leverage.
• Higher Net Loss After Tax: The net loss after tax stood at $37.6 million in FY21 versus $18.6 million in FY20.
• Well Capitalised: The company held an $81.9 million cash balance to drive future growth initiatives on 30 June 2021.
• Increase in Cash Receipts: ELO collected $79.8 million cash receipts through FY21, depicting an increase of 38.8% YoY in FY21.
• Debt Drawn: On 15 March 2021, ELO obtained a $34.5 million debt facility from the Commonwealth Bank of Australia and had drawn most of the facility as of 30 June 2021.

Revenue & Underlying EBITDA from FY19-FY21; (Analysis by Kalkine Group)

Key Risks:

• Compliance Risk: The company faces compliance risk with new regulations coming in the industry and technology space.
• COVID-19 Impact: ELO faces the impact of the COVID-19 outbreak on its own and customers’ businesses which may impair and impact the trade receivables.
  

Outlook: ELO expects revenue in the range of $90.5-$95.5 million and EBITDA between $1.0-$6.0 million for FY22. The company has provided ARR guidance between $105.0-$111.0 million for 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 ELO gave a positive return of 1.83% in the past three months and a negative return of 23.23% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.200 - $7.440The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average, considering its higher debt-to-equity ratio, operating cash outflows, higher net loss after tax in FY21 and the associated COVID-19 and regulatory risks. For the purpose of valuation, few peers like Integrated Research Limited (ASX: IRI), Class Limited (ASX: CL1), Bigtincan Holdings Limited (ASX: BTH), and others have been considered. Considering the current trading levels, decent financial performance for FY21, expanded base through acquisitions of Breathe and Webexpenses in FY21, expansion plans for Breathe in Australia in 2HFY21, valuation, we give a ‘Buy’ rating on the stock at the current market price of $4.990, as on 7 September 2021, 3:44 PM, (GMT+10), Sydney, Eastern Australia.

 ELO Daily Technical Chart, Data Source: REFINITIV

Whispir Limited

WSP Details

Change in Shareholding: Whispir Limited (ASX: WSP) is a software-as-a-service (SaaS) firm providing communication management systems through a cloud-based platform that automates interactions between businesses and people. On 1 September 2021, Regal Funds Management Pty Limited (RFM) increased its shareholding in WSP from 8.02% to 9.62%.

FY21 Financial Highlights:

• Increase in ARR: WSP posted growth of 28.5% YoY to $53.6 million in FY21, with recurring revenue constituting 96.7% of total revenue.
• Revenue Growth: The revenue increased to $47.7 million, up by 22.1% YoY in FY21 due to ARR growth and higher usage amongst available customers.
• New Customers Added: The company’s total new customers rose to 801 in FY21, increasing 27.1% on FY20.
• Rise in Operating EBITDA: The company delivered an improved EBITDA loss of $4.7 million in FY21 compared to $5.6 million in FY20, down by 15.1% YoY.
• Liquidity Position: WSP is well capitalised to fast-track growth with $49.2 million of cash and equivalents post the capital raise of $45.9 million in Q3FY21.

Growth in Customers from FY19-FY21; (Analysis by Kalkine Group)

Key Risks:

• Forex Changes: WSP faces foreign currency changes due to operations’ exposure in the global markets.
• COVID-19 Impact: The company witnessed a delay in new customer activations in the Asian market and its financials due to the prevalence of uncertainty.  
  

Outlook:

• The company expects ARR to increase by 22-31% YoY to $65.4 - $70.0 million in FY22.
• WSP provides revenue guidance in the range of $57.2 - $60.2 million, up by 20-26% YoY and operating EBITDA loss between $15.5 - $13.0 million in FY22.
• WSP estimates 70-80% growth in the R&D cash spends to $17.5 - $18.0 million in FY22.
• The firm will grow platform usage, customers, and sales performance in Asia, Australia-New Zealand, and North America as per its long-term growth strategy.

Stock Recommendation: The stock of WSP gave a negative return of 15.75% in the past three months and a negative return of 31.13 in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.120 - $4.630. On a TTM basis, the stock of WSP is trading at a price to book value multiple of 4.5x lower than the industry (Software & IT Services) median of 5.9x, thus seems undervalued. Considering the current trading levels, growth in ARR, revenue and net customers, platform usage in FY21, no debt in FY21, the ARR and revenue forecast for FY22, valuation on a TTM basis, and associated risks of COVID-19, technology, and exposure to new geographies, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.300, 2.44 PM, as on 7 September 2021, (GMT+10), Sydney, Eastern Australia.

WSP 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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