IVE Goup Limited 

 IGL Details

Share Buy Back Underway: IVE Goup Limited (ASX: IGL) is a vertically integrated marketing and print communications provider. The company enables its customers to communicate more effectively with their customers by creating, managing, producing, and distributing content across multiple channels. IGL continues with its share buyback program initiated in December 2020. IGL can buy back up to 10% of the company’s ordinary shares. At the time of buyback program, there were approximately 148.2mn shares on issue.  As per the latest filing on 1 July 2021, the company may still buy back 9.37mn ordinary shares. 

1HFY21 Financial Highlights: IGL has registered a decline in revenue due to Covid-19 impacts. Despite a decline in revenue, the company has registered an increase in profit due to decrease in operating expenses. The cash balance increased due to underlying earnings and reduced working capital. The non-current liabilities have decreased as on 31 December 2020, mainly due to paying off loans and borrowings and lease liabilities.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company deals with foreign currency. Therefore, any adverse foreign exchange prices may impact the financials. In addition, the company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company.  

Outlook: IGL has provided its guidance on FY21 with underlying EBITDA expected to be in a range of $98-$100mn. In addition, the company expects revenues of ~$20mn/annum to be transitioned for the five-year Australian Community Media (ACM) contract by the end of FY21. IGL’s clients Westpac Banking Corporation have renewed contract for a further five years at an estimated annual contract value of $20mn per annum. IGL expects its restructure and acquisition costs at ~$4mn for FY21.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 IGL gave a return of ~21.22% in the last one month and a return of ~18.24% in the last three months. The current market capitalisation of IGL stands at ~$233.73mn as of 7 July 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.57-~$1.695. On the technical analysis front, the stock has a support level of ~$1.40 and a resistance of ~$1.85. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering declining revenue trend since 1HFY19 to 1HFY21, Covid-19 led uncertainties, forex headwinds, etc. For this purpose, we have taken peers GTN Ltd (ASX: GTN), Seven West Media Ltd (ASX: SWM), Prime Media Group Ltd (ASX: PRT). Considering a decent stock price movement in the past few months, current trading levels, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $1.685, up by ~3.374%, as on Jul 7, 2021.

IGL Daily Technical Chart, Data Source: REFINITIV 

Prospa Group Limited 

PGL Details

Increased Lending to Small Businesses: Prospa Group Limited (ASX: PGL) is a financial technology company. The company designs, builds and utilises cloud-based, application program interface-enabled (API) technologies. PGL has announced on 19 May 2021 regarding $2bn lending to small businesses through its financial technology platform. Due to a strong growth trend in originations, the company has witnessed a significant increase in lending for small business customers. The total originations increased to $41.5mn in April 2021, up by 133% YoY. 

3QFY21 Business Update: PGL has reported $121mn of originations in 3QFY21, up by 20% QoQ. PGL has witnessed 81% of the total originations in 3QFY21 from small business loan and 19% were from the company’s line of credit product. PGL has registered a robust month on month growth in originations well supported by New Zealand business, which has registered 11% increase QoQ and a record month in March 2021. Average gross loans increased to $354mn in 3QFY21 and cash balance stood at $93.2mn as on 31 March 2021. 

1HFY21 Financial Highlights: PGL has registered a decline in total income due to Covid-19 situation led to lower average gross loans on constrained risk appetite in 1HFY21. The company has incurred a loss of $3.24mn in 1HFY21. Non-Current borrowings have been declined to $283.66mn as on 31 December 2020 against $317.20mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company utilises technology for its business activities. Therefore, obsolete technology may impact the business. In addition, the company is exposed to credit risks. Therefore, failure to get paid back from borrowers may impact the financials of the company.  

Outlook: PGL plans to increase its investments in R&D, workforce, sales, and marketing initiatives considering a strong trend in originations and increased lending to small businesses. The company is focused on developing and building new payment solutions in the market for short- and long-term growth plan.

Stock Recommendation: The stock of PGL gave a return of ~36.58% in the last three months and a return of ~31.76% in the last six months. The current market capitalisation of PGL stands at ~$179.29mn as of 7 July 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.67-~$1.17. Considering a decline in total income and incurring a loss in 1HFY21, expectations of higher operating costs on increased lending, decent stock price movement in past few months, and current trading levels, we give a “Sell” rating on the stock at the current market price of $1.120, (as on July 7, 2021, 11.22 AM (GMT+10), Sydney, Eastern Australia).

PGL 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.

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