OpenLearning Limited

OLL Details

Growing Online Learning Markets: OpenLearning Limited (ASX: OLL) offers an online learning platform to education providers and a global marketplace of world-class courses for learners of all levels. During the mid CY2021, the online lifelong learning markets in Australia and Southeast Asia witnessed continued growth, wherein OpenLearning paid a major contribution in the process.

Market Scenario:

• As per the Q3FY21 report, the Australian online education market is likely to rise ~8.2% and reach the toll of $7.9 billion in 2021.
• Lifelong learning has a market share of 95% in the online education market of Australia, and OLL is strengthening its position as a leading lifelong learning platform in Australia and Southeast Asia.
• OLL continued to be a leader in the sector, which is likely to be supported by new platform innovations, acceptance of the Transition Program Online Transition Program Online (TPO) by more universities, increasing adoption of its OpenCreds micro-credential framework as well as the rollout of CS101 in order to fill the gap in the technology skills.

Q3FY21 Financial Summary:

• Rising Enrollments: The company witnessed enrollment of over 100 students in the TPO during a period of less than a year since the agreement was inked with UNSW Global.
• Increase in Platform Revenue: During the quarter, the company recorded substantial growth of ~186% in platform revenues to $0.825 million against $0.288 million in Q3 FY20. This growth was backed by TPO and consistent Platform Subscription revenue. Platform (Software-as-a-Service) SaaS customers soared by 37% to 196 and witnessed a rise of 12 clients in SaaS.
• Growing Cash Receipts: OLL recorded a rise of 71% in cash receipts from customers to $1.338 million, which include receipts of $0.238 million from Platform Subscription and $0.847 million from Program Delivery because of students enrolling and paying in the month of August and September.

1HFY21 Financial Highlights:

• Rising Market Share Supported Revenue Growth: During the half-year, the platform revenue increased by 120% to $1.135 million on a YoY basis. This was comprised of revenue of $0.726 million and $0.409 million from platform subscription and program delivery, respectively. The revenue growth was aided by increased market share in Australian and Southeast Asian online lifelong learning market.
• Losses in Business: Loss for the period amounted to ~$3.0 million against ~$2.2 million in 1HFY20, reflecting an increase of 37% on a YoY basis due to increased operating expenses and investments in new programs.

Platform Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Competitive Pressure: The company’s operational and financial health could be impacted by the rising market share of its peers and changing sentiments of clients and customers.
• Technology Risk: Any shift in new technology within the market in which it operates could pose an operational risk to the business.

Outlook:

• Looking forward, the company is focused on platform subscription and program delivery offerings, which may drive revenue growth.
• The company is optimistic about the five intakes in TPO during CY22. In addition, OLL is increasing its sales and marketing team to support go-to-market efforts in multiple geographies.

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 aiming for the rising demand for technology skills among corporates and working professionals. As on 30 September 2021, the company had a cash balance of $4.233 million against $5.744 million as on 30 June 2021. The company is trading near to its 52-week low level of $0.105, offering a decent opportunity for accumulation. The stock of OLL has been corrected by ~8.69% and 24.99% in the past one and three months, respectively. 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 can trade at a slight discount to its peers’ median EV/Sales multiple, considering the COVID-19 disruptions, negative ROE and low gross margin. For the purpose of valuation, peers such as 3P Learning Ltd (ASX: 3PL), Reckon Ltd (ASX: RKN), Integrated Research Ltd (ASX: IRI), and others have been considered. Considering the expected upside in valuation, rising platform revenue, growing market share, increasing cash receipts, decent long-term 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 $0.105, up by ~4.999% as on 25 October 2021.

OLL Daily Technical Chart, Data Source: REFINITIV 

LiveTiles Limited

LVT Details

FY21 Financial Summary: LiveTiles Limited (ASX: LVT) is involved in the development and sale of business software in Australia and overseas. During the year ended 30 June 2021, the company witnessed decent growth in operating revenue, substantial improvements in underlying EBITDA and operating cashflows. In addition, it is also focused on capitalising on the evolving opportunity in the growing Employee Experience market, to be supported by a new Strategic Plan to start in FY22.

• Growing Subscribers Supported Operating Revenue: As a result of growing subscribers in all markets, the company has witnessed growth of 19% in operating revenue to ~$45 million and the contracted licence base rose by 48% to 2.3 million in FY21. LVT managed to achieve this decent growth in spite of the ongoing challenges from the uncertainty with COVID-19 globally.
• Decent Improvement in EBITDA Loss: Due to declining operating expenses, LVT posted an improvement of 91% in underlying EBITDA loss to $1.1 million against $12.55 million loss in FY20.
• Improving Operating Cash Position: LVT recorded net cash operating outflows (excluding govt. grants and nonrecurring items) of $(6.2) million, reflecting an improvement of 71% against FY20.

Operating Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Exchange Risk: As the company operates in multiple geographies, which leads the business to a forex risk caused by unfavourable movement in foreign exchange.
• Regulatory Risk: LVT’s increasing presence globally may increase regulatory requirements and can create regulatory risk for the business.

Outlook:

• Looking forward, the company is aiming to grow licenced user numbers, with minimum growth of 5 times by 2024.
• The company would work continuously to leverage the operating model for efficiencies for maximising commercial opportunities.
• LVT anticipates strong medium to long-term growth potential, which would be backed by increased remote working and the demand for Employee Experience solutions to said organisations in a post-pandemic working environment.
• The company has scheduled to release its Q1FY22 results on 28 October 2021.

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: During September 2021 month, the company signed an agreement with “OneVentures” for a A$10 million loan facility for the tenure of a three-and-a-half-year period. The company would ultilise the funds for its future investment strategies to deliver on its new product developments and working capital and operational requirements. The company closed FY21 with cash and cash equivalents of $16.8 million as compared to ~$37.79 million as on 30 June 2020. The company is trading on its 52-week low level of $0.115, offering a decent opportunity for accumulation. The stock of LVT has been corrected by ~7.40% and 19.35% in the past one and three months, respectively. 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 can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 disruptions, foreign exchange risk, negative net margin and low current ratio. For the purpose of valuation, peers such as Integrated Research Ltd (ASX: IRI), Adacel Technologies Ltd (ASX: ADA), ReadCloud Ltd (ASX: RCL), and others have been considered. Considering the expected upside in valuation, improving operating cash, recent loan facility, rising operating revenue, improvement in EBITDA loss, decent long-term 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 $0.1225, as on 25 October 2021, 2:19 PM (GMT+10), Sydney, Eastern Australia.

LVT 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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