Appen Limited 

APX Details

Change in Substantial Shareholding: Appen Limited (ASX: APX) is involved in providing data solutions and services to machine learning and artificial intelligence (AI). The company works through two segments: Relevance and Speech & Image. Mondrian Investment Partners Limited (in the capacity of fund manager) who became APX’s substantial shareholder on 19th November 2021 by gaining voting power of ~5.10%, which increased to ~6.18% on 30th November 2021. 

H1FY21 Highlights:

• Revenue: Though its new market revenue was up by ~31.5%, due to allocation of resources to its global customers’ (new and non-advertising related projects), its global services revenue lowered by ~9.2% (pcp). Thereby, decreasing the overall revenue by ~2.0% Y-o-Y to ~US$196.6 million in 1HFY21 Vs 1HFY20.
• Underlying EBITDA: The company’s underlying EBITDA also fell by ~14.3% lowering the margins to ~14.1% from ~16.1% in 1HFY20. The reduction in margins is because of FY20’s growth investments’ fully annualised cost base and new markets investment in 1HFY21 and reported its underlying EBITDA as ~US$27.7 million for 1HFY21.
• Dividend & Cash Balance: The company declared a flat interim dividend of ~AU4.5 cents per share for its first half and closed the half-year at the end of 30^th June 2021 with a cash balance of ~US$65.96 million versus ~US$60.48 million at the end of 31^st December 2020.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company might get affected by the risks associated with the impacts of COVID-19 and the new variant Omicron. This, in turn, might affect the employees, operational functions, and thereby profitability. As the company has its business globally, it is also susceptible to the risks associated with foreign currency risks and the demand & supply fulfilment due to changing tastes and preferences of customers.

Outlook: APX expects that the data annotation market will grow from ~US$2.5 billion in FY21 to ~US$5.0 billion in FY24E (expected) with a compounded annual growth rate (CAGR) of ~25%. The company’s expenses grew moderately in 2HFY21, from which APX expects its restructure-related cost savings of ~US$15 million to be re-invested to drive product development and its growth in FY22. Due to Quadrant’s product and market expansion strategy in FY21 and FY22, its EBITDA is expected to be impacted and reduced to ~US$81-~US$88 million from its February & May guidance stating ~US$83-~US$90 million. The company is set to report its financials for the year ending 31^st December 2021 on 24^th February 2022. 

Valuation Methodology: P/E 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 the company has been corrected by ~23.55% in the past six months. Currently, the stock is trading close to its 52-weeks’ low level of $8.36. The stock has been valued using the P/E based relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the expected cyclical effect of Omicron COVID-19, foreign currency price fluctuations and the expected decline in EBITDA, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like EML Payments Ltd (ASX: EML), Infomedia Ltd (ASX: IFM), Data#3 Ltd (ASX: DTL) have been considered. Considering the future investment plans in product’s growth, stable debt levels in the last two years, 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 current market price of $9.75, 10:35 AM (GMT+10), Sydney, Eastern Australia, as on 17 January 2022.

APX Daily Technical Chart, Data Source: REFINITIV

Bravura Solutions Limited

BVS Details

Change in Substantial Shareholding: Bravura Solutions Limited (ASX: BVS) gives software solutions and caters to the wealth management, life insurance and funds administration industries. Its products include investment products, wrap platforms, funds administration, financial planning, superannuation and pension, life insurance, private wealth and portfolio admin, software and microservices. Connor, Clark & Lunn Financial Group Ltd. and its related bodies, a substantial shareholder of the company, has increased its voting power to ~11.94% from ~10.47% on 4 January 2022.

FY21 Performance Highlights:

• Revenue: BVS total revenue reduced by ~11.05% Y-o-Y from ~$272.44 million to ~$242.34 million in FY21 Vs FY20.
• Net Profit: The company’s net profit was lowered by ~13.83% Y-o-Y and reported as ~$34.56 million for FY21 Vs ~$40.11 million in FY20.
• Dividend & Cash Balance: The company declared a final dividend of 6.0 cents per share and closed the FY21 at the end of 30^th June 2021 with a cash balance of ~$73.57 million versus ~$99.08 million at the end of 30^th June 2020.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron, which might affect the employees, operational functions, and thereby profitability. It is also dependent on the technology, glitches, and failure in upgradation to which might lead to operational hampering.

Outlook: The company is keeping confidence in the strong sales pipeline and expects a strong growth trajectory in FY22. BVS expect an increase of ~2% in director’s fees for FY22. It plans to release its 1HY22 results in February 2022.

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 the company has been corrected by ~27.74% in the past six months. Currently, the stock is trading below the average of its 52-week low and high levels of $2.31 and $3.98, respectively. The stock has been valued using the EV/Sales based relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the decrease in FY21 revenues and net profits, the expected cyclical effect of Omicron COVID-19, technological challenges with ever-increasing competition, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like Hansen Technologies Ltd (ASX: HSN), Hansen Technologies Ltd (ASX: LVT), Bigtincan Holdings Ltd (ASX: BTH), and others have been considered. Considering the growth in the sales pipeline, reducing debt levels, current trading levels, decent fundamentals, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $2.36, 02:00 PM (GMT+10), Sydney, Eastern Australia, as on 17 January 2022.

BVS 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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