iCollege Limited

ICT Details

Notice to Extend the Offer Period: iCollege Limited (ASX: ICT) provides vocational education and offers training solutions of knowledge-based skills to gain employment. The market capitalisation of the company as on 18 May 2021 stood at $72.69 million. As per a recent announcement, ICT gave a notice that has extended the offer period to acquire 100% of the shares in RedHill Education Limited, under section 650D of the Corporations Act 2001 (Cth). The offer now remains open for acceptance until 28 June 2021. 

Q3FY21 Financial Performance: During the period, the company has reported increased revenue of ~52% to $4.55 million in Q3FY21, compared to the corresponding $2.99 million in Q3FY20. ICT has generated an operating EBITDA of $1.01 million in this quarter. The company has witnessed significant rise in international student enrolments, contributing over $1.5 million during the quarter. It ended the period with a cash position of $5.17 million as of 31 March 2021.

Q3FY21 Cash Flow from Operations (Source: Company Reports)

Outlook: The company has continued to focus its marketing spend and partnership to expand in aged care, hospitality, building and construction, which might provide sustainable enrolment and robust growth in the domestic student market. ICT is looking for expansion opportunities in New South Wales and Victoria through potential acquisition. It believes that it is well-positioned for the near term and expects to deliver its highest full-year revenue and earnings in FY21 since listing.

Key Risks: Any further restrictions on travel ban and international border closure might have an impact on overseas student enrolments which contributes 47% of total revenue.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 Q3FY21, the company has reported a collection of $3.46 million in customer receipts. The stock of ICT is trading below its average 52-weeks’ levels of $0.029-$0.170. The stock of ICT gave a positive return of ~140.38% in the past nine months and a positive return of ~4.16% in the past one week. On a technical analysis front, the stock of ICT has a support level of ~$0.12 and a resistance level of ~$0.15. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the uptick in financial performance and positive outlook. For the purpose, we have taken peers such as G8 Education Ltd (ASX: GEM), Janison Education Group Ltd (ASX: JAN), IDP Education Ltd (ASX: IEL), to name a few. Considering the expected upside in valuation and current trading levels, decent cash balance, proposed acquisition, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.130, up by 4% as on May 18, 2021. 

ICT Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Harris Technology Group Limited

HT8 Details

Change in Substantial holding: Harris Technology Group Limited (ASX: HT8) is an online vendor that offers IT products and PPE products in Australia. It also engages in selling its product from other online platforms such as Amazon, Kogan, Catch, eBay, etc., for small, medium businesses. The market capitalisation of the company as on 18 May 2021 stood at $32.75 million. As per a recent announcement, the company has reported a change in interest of Australian PC Accessories Pty Ltd in the firm to 85,643,708 shares from 84,019,992 shares.

Change of Director’s Interest: The Director of the company, Alan Sparks and Guy Polak, has recently undergone a change of interest in the company and has acquired 80,000 shares each. On 29 April 2021, the company has proposed to issue 40,000,000 securities at a price of AUD 0.125. 

Q3FY21 Financial Performance: During the period, the company has reported a sales hike by 206% to $10.4 million in Q3FY21, compared to $3.4 million in Q3FY20. HT8 has recorded a significant increase in total revenue till March 2021 by 300% to $30 million, compared to $7.48 million in the previous corresponding quarter. It ended the period with a cash position of $2.3 million as of 31 March 2021. It successfully raised a placement of ~$5 million on 23 April 2021.

Revenue Performance (Source: Company Reports)

Outlook: HT8 has significantly increased the inventory capacity by more than 200% in the past six months and this has enhanced opportunities for further growth by onboarding new market-leading brands. The company will look to offer new product categories such as homeware, kitchenware and refurbished IT products which might surge in the target market and demand.

Key Risks: The restrictions of lockdown, such as maintaining social distancing requirements, quarantine, travel restrictions, could impact the delay in operations of the company.

Stock Recommendation: During the period, the company has commenced a partnership with MYSALE Group PLC and will have access to tech and home office products and a new customer base. The stock of HT8 is trading below its average 52-weeks’ levels of $0.023-$0.225. The stock of HT8 gave a negative return of ~17.3% in the past six months and a positive return of ~2.38% in the past one week. On a technical analysis front, the stock of HT8 has a support level of ~$0.10 and a resistance level of ~$0.13. On a TTM basis, the stock of HT8 is trading at an EV/Sales multiple of 1.2x, lower than the industry median (Technologies) of 5.5x. Considering the current trading levels and valuation on TTM basis, fast-growing demand, decent cash inflow, increase in inventory and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.110 as on 18 May 2021. 

HT8 Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

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