Genetic Signatures Limited

GSS Details

Termination of a Substantial Holder: Genetic Signatures Limited (ASX: GSS) is engaged in the research and commercialization of identifying individual genetic signature to identify diseases and disabilities, and the sale of associated products into diagnostic and research marketplace. GSS has reported on 1 June 2021 regarding termination of a substantial holder in the company. Regal Funds Management Pty Ltd (RFM) has been ceased to be a substantial holder on selling ordinary shares in the company completely on 28 May 2021. 

3QFY21 Update: GSS has registered a robust revenue growth of 136% YoY to $4.3mn in 3QFY21. The company has seen a growth of 24% QoQ in 3QFY21 for its international sales, representing 43% of total quarterly revenue. The company has reported year to date sales revenue of $23mn for the nine months ending 31 March 2021, indicating more than double revenue of full year of FY20. The company has reported a cash balance of $31.9mn and nil debt as of 31 March 2021.

1HFY21 Financial Highlights: GSS has reported an increase in revenue to $18.92mn in 1HFY21 against $3.70mn in 1HFY20 mainly due to increase in revenues from the US and European customers. Similarly, the company has posted a profit of $4.49mn in 1HFY21 against a loss of $2.34mn in 1HFY20. The company had posted profits owing to increase in average selling price partly offsetting spurt in transportation costs.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign currency. Thus, any adverse price movement in foreign currency may impact the financials of the company. In addition, the company requires regulatory approvals to operate its business efficiently. Therefore, any delay in regulatory approvals for its diagnostics platforms may impact the business. 

Outlook: GSS is well positioned to take advantage of the regulatory approvals for Respiratory, Enteric, STI and antibiotic resistance detection kits in Europe and Australia. SARS-COV-2 has offered the company with new customers in the USA, Australia, and Europe. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Stock Recommendation: The stock of GSS gave a return of ~-7.81% in the last one month and ~-27.60% in the last three months. The current market capitalisation of GSS stands at ~$171.48mn as of 18 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.10 to ~$2.94. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the stock might trade at a slight discount as compared to its peer average EV/Sale (NTM trading multiple) considering its exposure to foreign exchange currency swings and its impact on profitability and inherit risk in healthcare diagnostic industry. For this purpose, we have taken peers Palla Pharma Ltd (ASX: PAL), BPH Energy Ltd (ASX: BPH), Telix Pharmaceuticals Ltd (ASX: TLX). Considering the company has registered profits in 1HFY21 against losses in 1HFY20, robust revenue growth in 3QFY21, nil debt on its balance sheet as on 31 March 2021, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.18, down by ~1.667%, as on June 18, 2021.

GSS Daily Technical Chart, Data Source: REFINITIV 

Openpay Group Ltd

OPY Details

3QFY21 Update: Openpay Group Ltd (ASX: OPY) is a technology-based company that provides payments platform for merchants and consumers in Australia. The company’s software and technology platform enable customers to select from a range of no interest payment plans when purchasing goods or services. OPY has seen a significant improvement across leading indicators in 3QFY21. OPY has reported an increase in its active plans to 1.7mn in 3QFY21, up by 19% QoQ. Moreover, OPY has reported an increase of 10% QoQ in active customers to 505k in 3QFY21. In addition, Total Transaction Value (TTV) increased by 80% YoY to $83mn in 3QFY21. The company has signed important agreements with brands such as Officeworks and Ford. OPY entered US$55.8bn US and UK veterinary markets in partnership with ezyVet.

Notice on Initial Substantial Holder: Credit Suisse Holdings (Australia) Limited has acquired 6.77mn common stocks in OPY, representing 5.18% of the voting power. 

1HFY21 Financial Highlights: OPY has reported an increase in total income to $13.62mn in 1HFY21 against $8.27mn in 1HFY20. OPY has incurred a loss of $25.48mn in 1HFY21 against a loss of $15.91mn in 1HFY20, mainly due to higher operating expenses. The company has seen a decline in its cash balance to $39.28mn as on 31 December 2020 against $70.05mn as on 30 June 2020.

Total Income trend (Source: Analysis by Kalkine Group)

Key Risks: The payment gateway business is highly regulated and is correlated to household spending. Increasing competition may result in higher customer churn. Swings in foreign exchange rates may affect profitability. 

Outlook: OPY has registered first revenue during 1HFY21 through OpyPro. Woolworths Group contributed to OPY’s revenue due to transitioning business customers to Openpay platform. OPY is expecting to reach all stores across states with rollout of OPY platform during 2HFY21. OPY is working closely with Austrade to explore global opportunities in parallel to the maturing Australian pipeline build. OPY continues to see a growth in merchant partnerships to scale up its business in the future. The company is expecting to launch strategies for high growth business verticals such as Automotive and Healthcare in the UK. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Stock Recommendation: The stock of OPY gave a return of ~-18.87% in the last one month and ~-46.46% in the last three months. The current market capitalisation of OPY stands at ~$187.0mn as of 18 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.420 to ~$4.980. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the stock might trade at some discount as compared to its peer median EV/Sale (NTM trading multiple) citing the intense competitive in payment gateway business and is highly influenced by household spending which in turn dependent on employment situation and consumer confidence.  For this purpose, we have taken peers ELMO Software Ltd (ASX: ELO), Bravura Solutions Ltd (ASX: BVS), QuickFee Ltd (ASX: QFE). Considering the company has registered first revenue from OpyPro in 1HFY21, increasing merchant partnership to scale up business, the current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.435, up by ~0.349%, as on June 18, 2021.

OPY 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.

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