Bravura Solutions Limited

BVS Details

Change in Director’s Interest & Substantial Share Holdings: Bravura Solutions Limited (ASX: BVS) offers software products and services and caters to the clients from the wealth management and funds administration industries. Recently, one of its directors Brent Henley acquired 75,627 shares at $1.833 per share, 19,373 at $1.801 per share and 1,100 at $1.790 per share, ordinary shares. While on the other hand, Invesco Australia Limited and UBS Group AG and its related bodies corporate ceased to be company’s substantial shareholder with effect from April 8, 2022.

Insights of 1HFY22:  

• Revenue: During 1HFY22, the company’s revenue reported a hike of ~14% on pcp basis to $132.3 million, where $4.1 million was contributed by Delta acquisition. The recurring revenue comprised of ~81% of total group revenue.
• Profitability: With an EBITDA margin of 19% during the period vs 14% in 1HFY21, EBITDA grew by ~61% to $25.3 million. Whereas NPAT was reported as $15.3 million, which is an uptick of ~69% from 1HFY21.

Key Metrics (Source: Analysis by Kalkine Group)

Key Risks: BVS operates in a very competitive environment, and the rising market share of peers could impact its financial health. In addition, the business is exposed to foreign exchange risk as it operates in multiple geographies.

Outlook: With the optimism, the company is expecting its revenue growth to be more than 10% as against FY21. On the other hand, in order to build the sales pipeline, BVS expects its operating costs to increase at similar rate to revenue and envisages its EBITDA to be in the range of $45 million to $50 million and NPAT to be in the range of $25 million to $30 million for FY22.

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 BVS is trading near to its 52-week low level of $1.495, offering a decent opportunity for accumulation. The stock of BVS has been corrected by ~40.10% in the past six months. The stock has been valued using a P/E 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’ mean P/E multiple, considering the reduction in current ratio in H1FY22 and expected rise in operating costs in FY22. For the purpose of valuation, peers such as Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), Reckon Ltd (ASX: RKN), and others have been considered. Considering the expected upside in valuation, rising topline & bottom line, revised optimistic guidance, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.695, down by ~1.166%, as on 27^th April 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.

BVS Daily Technical Chart, Data Source: REFINITIV  

ELMO Software Limited

ELO Details

Change in Substantial Share Holdings: ELMO Software Limited (ASX: ELO) is a cloud-based solutions (Software-as-a-Service (SaaS)) supplier which caters small businesses and midmarket organizations. Recently, Immersion Capital Master Fund Limited reduced its substantial shareholding from ~13.88% to 12.97%.  

Modules Launch: After half-yearly results, in the month of March 2022, ELMO launched ‘Hybrid Work’ and ‘Wellbeing’, which will help businesses to manage the new way of working. The said modules will broaden convergent solution and will strengthen the customer offering.

1HFY22 Top Line & Bottom Line: The company’s revenue grew to $43.1 million, an uptick of ~41% on 1HFY21 and Net loss after tax bulged from $12.42 million to $40.32 million.

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: With the plans of ramping up the ANZ & UK activities, ELO also renewed its guidance of revenue in between $91 million-$96 million and EBITDA in between $1.5 -$6.5 million. Moreover, its ARR is expected to be in the range of $107 million -$113 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 company is trading below its 52-week low-high average of $3.340 - $5.780, respectively. The stock of ELO has been corrected by ~13.04% 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 margin. For the purpose of valuation, peers such as Nearmap Ltd (ASX: NEA), Janison Education Group Ltd (ASX: JAN), FINEOS Corporation Holdings PLC (ASX: FCL), and others have been considered. Considering the expected upside in valuation, growing revenue, increasing ARR, decent performance in mid-market business, conversion of negative EBITDA to positive, upgradation in outlook, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $3.400 as on 27^th April 2022, down ~7.35%. 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 

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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