Integrated Research Limited

IRI Details

Integrated Research Limited (ASX: IRI) operates as a software provider in the areas of business computing, unified communication networks, and payment networks. It operates in segments, namely, the United States, Europe, and the Asia Pacific. Its main product lines include collaboration, infrastructure, and transact.

H1FY22 Performance Highlights:  

• IRI clocked a Total Contract Value (TCV) of $31.7 million in H1FY22, an increase of 8% over PcP. Revenues from the Asia Pacific segment showed stellar performance with 80% expansion in topline, followed by Europe with 19% growth. The Americas segment plunged 24% over the prior year.
• Its cloud and hybrid solutions gained steam with about 440k users on the platform. This reflects a phenomenal 424% growth since the start of the fiscal year.
• It had inked a partnership with Utelogy to render remote management and monitoring of Unified Communications and video conference tools in collaboration space.
• New businesses showcased a 88% increase.
• Overall revenue edged up 5% to $32.3 million, and it had witnessed a 52% surge in EBITDA to $6.7 million.
• IRI invested about $12 million in building its cloud platform and new products in the last eighteen months.
• Its R&D expenses surged 27% YoY to $10.9 million. The company continues to invest in marketing with sales and marketing spend as % of pro forma revenue jumped to 51% in H1FY22 as compared to 49% in PcP.
• Its closing net cash stood at $9.4 million with $8.7 million from operations offsetting $5.9 million in developmental spend. The cash balance stood at $14.9 million as of December 31, 2021, as compared to $12.1 million as of June 30, 2021.
• The company repaid $1.1 million of its borrowings to reach $5.6 million as of December 31, 2021. It had an unused debt facility to the tune of $14.4 million.

Revenue Breakdown (Analysis by Kalkine Group)

Key Risks: Intensified competition in cloud solutions may limit margin expansion. The company’s revenues are exposed to forex fluctuations. Contraction in IT investments as a result of quantitative tightening may influence new business wins. Increasing cyber-attacks and cyber threats may slow down digital transition.

Outlook: IRI is optimistic about the turnaround of its Americas business with a strong pipeline and leadership changes. It is anticipating positive annual growth in FY22. The revolutionary SaaS transition to boost new products. The management is expecting stronger second half based on the timing of license renewals.

Valuation Methodology: EV/Sales 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 IRI has been corrected by ~42.31% in the past three months. The stock is trading below to its average of the 52-weeks’ low-high price band of $0.620-$2.780. The stock has been valued using the EV/Sales-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering the threat of its on-premise software business as a result of the SaaS transition. For this purpose of valuation, a few peers like Nuix Ltd. (ASX: NXL), Bravura Solutions Ltd. (ASX: BVS), Livetiles Ltd. (ASX: LVT), and others have been considered. Considering the banquet of new products in Hybrid solution, elite customer base, increasing investment in R&D, turnaround strategy of Americas, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.720 as of 03 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.

IRI Daily Technical Chart, Data Source: REFINITIV 

Harvest Technology Group Ltd

HTG Details

Harvest Technology Group Ltd (ASX: HTG) provides automation, monitoring, and communication solutions catering to the renewables, energy, and resources sectors. It conducts its operations in two segments - Subsea and Asset Integrity Risk Mitigation, and Remote Communications Technology.

H1FY22 Financial Spotlight:

• HTG posted a drop in revenue by 11.9% YoY to $849.86k in H1FY22. This was due to the discontinuation of some portion of its subsea and asset integrity risk management operations wherein which VOS Shine was related. Sales from the discontinued operations totaled $2.64 million in H1FY22.
• During the period, HTG partnered with Immarsat to gain a foothold in the new global satellite communications sector. In addition, it had executed a new Master Services Agreement with Immarsat’s new maritime initiative as a Certified Application Provider.
• The company continues to invest in new products and services. Its Remote Inspection Solutions is ready for a global launch in Q1FY22. Nodestream and Webex Cisco integration work continued through Q4FY21.
• It had incurred a net loss of $6.7 million in H1FY22 as compared to a net loss of $3.0 million attributed to lower topline and surge in personnel costs (R&D related). Besides, the company incurred non-cash expenses of intellectual property amortization cost of $614.9k and share-based payments of $152.84k.
• HTG closed the period with a cash balance of $5.17 million as of December 31, 2021.
• During the period, HTG raised $4.1 million (before costs) through entitlement offers from retail and institutional investors.
• On February 28, 2022, HTG received binding commitments to raise $6.78 million through the private placement of shares. The placement was completed at an issue price of $0.15 per share and 38.520 million new shares will be issued.

Cashflow Summary (Analysis by Kalkine Group)

Key Risks: HTG’s financial statements were prepared on a going concern basis reflecting uncertainty in the continuation of its operations. Delays in project execution and commercialization of its remote inspection solution may drain liquidity.

Outlook: As of February 2022, HTG generated annual recurring revenue of $2.5 million across 85 active licenses. It has over 1,345 licenses under pipeline covering maritime, defence and government, and other sectors. HTG is expecting to reap substantial opportunities from the recurring revenues.

Stock Recommendation: The stock of HTG has been corrected by ~37.51% in the past three months. The stock just recovered from its 52-weeks low price of $0.150. On a TTM basis, the stock is valued at an EV/Sales multiple of 11.4x in comparison to the industry median of 33.4x (Electronic Equipment & Parts). This indicates the stock is undervalued at current trading levels. Considering the continued investment in new products, plans to foray into satellite communications, recent private placement and fundraising, valuation based on TTM, and key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.155 as of 03 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.

HTG 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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