IOUpay Limited

IOU Details

Partnership with Razer Merchant Services: Ioupay Limited (ASX: IOU) is a financial technology and digital commerce software solutions and services firm in Australia. As of 15 June 2021, the market capitalisation of IOU stood at ~$176.45 million. On 15 June 2021, IOU announced that it has entered a master merchant contract with Razer Merchant Services Sdn Bhd (RMS) for a year on a renewable basis. As per the contract, RMS will acquire and refer merchants and integrate IOU’s BNPL (Buy Now Pay Later) payment services with the merchants on board. The agreement is operative in Malaysia with all participating merchants based in Malaysia. As agreed, IOU will pay RMS a low fixed fee to IOU per transaction. The deal will be applicable after four weeks of testing and system integration of the two companies.

March 2021 Quarter Highlights: The company announced partnerships with the Malaysian networks -EasyStore, iPay88 and MYP1 for merchant acquisition and referral. It launched merchant App and consumer App services in a restricted environment for a limited merchant pool and BNPL platform’s offering completion. IOU raised $50 million via a share placement to sophisticated investors and existing shareholders in February 2021. It issued 100 million shares to investors at $0.50 per share. IOU will use the proceeds to fund BNPL inventories and digital payments, and BNPL product development. It earned $1.94 million cash receipts from customers and a net operating cash outflow of $617,000 in Q3FY21.

Key Financials from FY2016-FY2020; (Analysis by Kalkine Group)

Key Risks: It is exposed to the technical failures and technological upgrades required on its platform. The company is also exposed to the risks associated with foreign currency exchange rates.

Outlook: IOU is planning and implementing its accelerated merchant customer acquisition strategy, focusing on high volume and premium merchants across industries. IOU is planning for a wide-scale launch of its Merchant App to priority merchants. It is also planning the launch of myIOU consumer App and customer onboarding online or in-stores. It has planned to execute a complete digital marketing plan in June for its product awareness and branding. IOU has reported that it is well placed for achieving June quarter 2021 deliverables. It plans to use the funds for the expansion of its Malaysian and South-East Asian territories operations.

Stock Recommendation: The stock of IOU gave a positive return of 106.66% in the past three months and a positive return of 474.07% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.015 - 0.850. On a TTM basis, the stock of IOU is trading at a price to book value multiple of 12.2x lower than the industry (Investment Banking & Investment Services) average of 16.7x, thus seems undervalued. Considering the current trading levels, the string of new partnerships with large scale merchant networks for BNPL services offering, launch plans for Merchant and Consumer App, expansion plans for South-East Asian expansion, valuation, and associated risks of expansion in new markets and the launch of new services/Apps, we give a ‘Speculative Buy’ rating on the stock at the AUD market price of $0.310, down by 3.126% as on 15 May 2021.

IOU Daily Technical Chart, Data Source: REFINITIV  

5G Networks Limited

5GN Details

Launch of 5GN Wholesale Offering: 5G Networks Limited (ASX: 5GN) is a high-speed broadband services provider to businesses. It also provides cloud-based solutions, managed services, and network infrastructure services. As of 15 June 2021, the market capitalisation of 5GN stood at ~$113.11 million. On 13 May 2021, 5GN announced its Wholesale offering, a partner sales channel to its Melbourne customers. The channel customers can now access data centre, connectivity services, IP transit and cloud services. It will also launch the sales channel in Sydney and Brisbane in the coming weeks.

Operational Business Update: The company introduced its Wholesale automated service fulfilment portal in early May 2021. It is advancing with online data centres build with 35 online planned by 30 June 2021. 5GN completed the integration with Intergrid Group Pty Limited and has recognised 50% of synergies post-integration. 5GN is reviewing the number of strategic acquisitions and expecting a $15 million sanction for bank debt facility for potential acquisitions. 5GN owns 44.6% equity in WCG (Webcentral), worth $42 million as of 26 April 2021.

Q3FY21 (March Quarter) Key Takeaways: The company posted consolidated group revenue of $26.5 million in Q3FY21. WCG has contributed revenue of $14.1 million in Q3FY21. It witnessed revenue growth across its core products and increased demand for its 5GN Voice Bridge One Microsoft Teams product. Its EBITDA for the March quarter stood at $4.7 million. The company reported rent reductions of $5.5 million in Q3FY21 annualised with room for further improvements basis further current excess capacity in Melbourne. Its consolidated revenue for the Group for YTD21 stood at $64.8 million.

Key Financials from FY18-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technology failure and foreign exchange price fluctuations due to operations in multiple countries. It is also exposed to the risk of realisation of acquisitions synergies.  

Outlook: 5GN expects revenue to grow by $10 million per year. 5GN has a robust pipeline of provisioning and additional services worth $300k per month to be switched on in the next three months. 5GN is targeting 80 data centres by the end of CY21.

Valuation Methodology: P/E 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 5GN gave a negative return of 22.17% in the past three months and a negative return of 27.71% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.935 - $2.440. The stock of IOU has a support level of ~$0.876 and a resistance level of ~$0.965. We have valued the stock using the Price to Earnings based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering its increase in net losses, network and data centre costs and higher borrowings (non-current) in 1HFY21 vs 1HFY20. For this purpose, we have taken peers like Uniti Group Limited (ASX: UWL), Vocus Group Limited (ASX: VOC), Aussie Broadband Limited (ASX: ABB) and others. Considering the current trading levels, the expansion of online data centres in Q3FY21, synergies from Intergrid Group Pty Limited, expected revenue growth, the launch of Wholesale to Melbourne customers, plans for potential acquisitions upon strategic review, valuation, and associated risks of acquisition synergies and new technological changes, we give a ‘Speculative Buy’ rating on the stock at the current market price of AUD 0.965, down by 2.526% as on 15 June 2021.

5GN 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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