Splitit Payments LTD

 
Decent Financials: Splitit Payments LTD (ASX: SPT) operates into two business model to generate revenues, a Funded Model and a Basic Model. The company generates revenues from transaction fees (Merchant fees) in relation to transactions processed through the Splitit Payment Platform.
 
The company recently stated that, on 8 June 2019, 355,539 fully paid ordinary shares (Escrowed Shares) will be released from mandatory escrow. The Escrowed Shares are held by unrelated shareholders who invested in the company. It represents approximately 0.12% of all shares on issue. The company recently informed about the change in substantial holding where Alon Feit reduced the voting rights to 8.32% from the earlier voting power of 10.44%.

The number of active merchants and shoppers continued to increase, delivering significant growth in Underlying Merchant Transactions and subsequently merchant fees. 57 new Active Merchants and 42,000 new Unique Shoppers were added in the company’s portfolio as they started using the Splitit platform during the March quarter, an increase of 103% and 290% Y-o-Y, respectively.
 

Key Metrics Performance Q1 2019 (Source: Company Reports)
 
On the financial front, the company reported a net loss after income tax of ~USD$4.64 million in FY18 as compared to ~USD$3.42 million in FY17. The sales income for the financial year stood at USD$789,920, up from USD$260,409 in FY17, exhibiting a substantial increase. The sales income was primarily comprised of merchant fees.
 
What to Expect From SPT: The company has a favourable sales outlook for FY19 as it focuses on acquiring market share with high ticket merchants. It will continue with its strategy to win the customer first and will expand its activity within existing strategic merchants to spread greater awareness among industries.
 
Stock Recommendation: The company witnessed a decent revenue performance, backed by an improvement in asset utilization along with several opportunities for expansion. Moreover, the company has seen decent growth in business drivers. However,the stock performance remained volatile with negative returns of 33.48% and 31.02% over the past three months and one-month period, respectively. Hence, considering the growth outlook in the business and looking at the current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.745 (up 7.971% on 31 May 2019).
 

Appen Limited

Significant NPAT Growth: Appen Limited (ASX: APX) is a machine learning and artificial intelligence developer. It is a global leader in the development of high-quality, human-annotated datasets for machine learning (ML) and artificial intelligence (AI).
The company has announced the completion of its acquisition of Figure Eight Technologies, Inc. The company’s revenue stood at $364.3 million in FY 18, reflecting an increase of 119% on the Y-o-Y basis. The growth was primarily driven by current and new projects with existing customers and the addition of Leapforce. The underlying net profit grew by 148% to $49.0 million in FY18 as compared to $19.7 million in FY17.

Customer Growth (Source: Company Reports)
 
The EBITDA margin of the company was improved from 16.9% to 19.6% in FY18 due to Leapforce and economies of scale. The company maintained strong cash conversion (92% of underlying EBITDA). Moreover, the company had strong divisional performance, withgrowth fuelled by multiple tech sector projects. The margins continued to be impacted by the mix of work. The new and existing customers of the company are growing with multiple projects. Consistent growth emphasized the importance of data and quality of Appen’s delivery. The growth was driven by data for new projects, more data for existing projects and data refresh.
 
EBITDA guidance going forward: Appen is uniquely positioned and continued to execute strongly in a high growth market. The company is investing in engineering to meet the demand for data. The company forecasts its full-year underlying EBITDA for the year ending December 31, 2019 to be in the range of $85 million - $90 million, after engineering investment (at A$1 = US$0.74 Feb-Dec 2019).

Stock Recommendation: Over the past six months, the stock has witnessed a rise of substantial 100.58% with the 1-month return of 10.11%. The positive factors have pushed the stock towards its 52-week higher level. We presume that most of the positive factors are discounted at the current level. Moreover, the stock declined by ~6.63% during the day’s trade post CEO presentation. By looking at the current trading level, we have a wait and watch view on the stock that trades at the current market price of A$26.03 per share (down 6.636% on 31 May 2019).   

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