Appen Limited

APX Details
 
Core Segments to Drive Robust Top-line Growth: Appen Limited (ASX: APX) is a global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence.

FY19 Business Highlights for the Period ended 31 December 2019: APX declared its full-year results, wherein the company reported revenue of $536 million, up 47% on y-o-y basis aided by strong organic growth and robust performance from its relevance segment. Top-line growth was positively impacted by the demand for human annotated data, mainly from existing customers. The company reported statutory underlying EBITDA at $101.0 million, up 42% on y-o-y, driven by the strong performance in core segment and improvement in operating leverage from scale and technology. The company reported underlying NPAT at $64.7 million, up 32% on y-o-y basis on the back of tax reductions. APX integrated Figure Eight with the company’s structure which is expected to be completed by the end of FY20.


Key Income Statement Highlights for FY19 (Source: Company Reports)

The Board of Directors announced a dividend of $ 0.0500 per share with a payment date of 20^th March 2020.

Outlook: The company expects a negligible impact on group revenue and earnings from the effects of the Coronavirus outbreak. The company expects FY20 EBITDA within the range of $125 million to $130 million. The business reported its order in hand of ~$210 million as on February 2020.

Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings value Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of APX is trading at $22.77 with a market capitalisation of $3.08 billion. The stock is trading at the lower of its 52-week trading range of $19.43 to $32. The stock has generated positive returns of 6.68% and 10.92% in the last six-months and one year, respectively. The company is making a substantial investment in sales and marketing in order to lay its foundation for future growth through broadening the range of customers, expanding in new geographies and increasing the component of recurring revenue. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like WiseTech Global Ltd (ASX: WTC), TechnologyOne Ltd (ASX: TNE) and Citadel Group Ltd (ASX: CGL) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $22.77per share, down 10.354% on 26^th February 2020.

 
APX Daily Technical Chart (Source: Thomson Reuters)

Computershare Limited

CPU Details
 
Operating Cash Flow up 41.7% y-o-y basis: Computershare Limited (ASX: CPU) offers services like issuer services, employee share plans & voucher services, communication services, mortgage services & property rental services, business services and technology services.
 
H1FY20 Operating Highlights for the Period ended 31 December 2019: CPU declared its half-yearly results, wherein the company reported revenues of US$1,141.7 million, as compared to US$1,127.8 million in pcp, aided by balanced growth in mortgage services & property rental services, employee share plans & vouchers segment which was offset by declines in corporate action and stakeholder relationship management. EBIT was reported at US$265.9 million, down from US$291.3 million in H1FY19, majorly due to the delayed UK Mortgage Services platform migration and lower margin income. The business reported NPAT of US$157 million, down from US$189.9 million in the previous corresponding period. The period was marked by strong net operating cash flow, depicting a growth of 41.7% on y-o-y basis, with the improved working capital position.


H1FY20 Financial Snapshot (Source: Company Reports)

The Board has declared an interim dividend of $0.23 per share, franked at 30%. The payment date is announced on 19^th March 2020.

Outlook: As per FY20 guidance, the company expects EPS to decline by ~5% from FY19. Momentum in issuer services, employee share plans and US mortgage services are likely to exceed the impact of lower interest rates and continued weak event-based activity.

Valuation Methodology: Price to Earnings Based Valuation 

Price to Earnings value Based Valuation (Source: Thomson Reuters), *1 USD = 1.52 AUD

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CPU is trading at $16.080 with a market capitalisation of $8.93 billion. The stock is trading below the average of its 52-week trading range of $14.180 and $18.65. The stock has generated mixed returns of -2.27% and 12.16% in the last three months and six-months, respectively. The company intends to execute its long-term growth strategies to build high-quality, core businesses with growing recurring revenues and driving efficiency gains across Computershare. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like Challenger Ltd (ASX: CGF), Suncorp Group Ltd (ASX: SUN), Insurance Australia Group Ltd (ASX: AIG) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $16.080 per share, down 2.604% on 26^th February 2020.
 
 
CPU Daily Technical Chart (Source: Thomson Reuters)

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