Over the Wire Holdings Limited

OTW Details

Robust Customer Retention Ratio at 96%: Over the Wire Holdings Limited (ASX: OTW) is engaged in the provisioning of telecommunications and cloud-based IT solutions to the corporate clients. On 16 January 2020, the company reported the issuance of 32,648 ordinary shares pursuant to the terms of OTW Employee Share Plan. With this issue, total number of ordinary shares stands at 51,639,931.

FY19 Operational Highlights for the Period ended 30 June 2019: OTW declared its full-year results, wherein the company reported revenue at $79.6 million, up 49% on y-o-y basis, aided by overall organic growth of 15%. The company reported EBITDA of $20.1 million, depicting a growth of 64% from FY18. OTW’s NPAT increased to $10.137 million from $5.531 million in FY18. Customer retention ratio at the end of FY19 stood at 96%. The business reported stellar growth across the Cloud/Managed Services at $23 million, up 217% on y-o-y basis. During the period, the company reported a successful acquisition of Access Digital Networks Pty Ltd and Comlinx Pty Ltd, which is likely to accelerate the group’s expansion across the South Australian market. EPS, during the period, increased by 63% on y-o-y basis to 20.66 cps.


FY19 Financial Snapshot (Source: Company Reports)

Outlook: As per the Management guidance, OTW is pursuing well against the strategy and the company continues to generate positive operational cash flow with a strong balance sheet. For the coming quarters, the company is well-positioned to deliver organic growth and pursue further accretive acquisitions.

Valuation Methodology: Price to Earnings Multiple Approach

Price to Earnings 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 OTW is trading at $4.44 with a market capitalization of ~$228.76 million. At the current market price, the stock is quoting at the lower band of its 52-week trading range of $3.750 to $5.450. The stock has generated negative returns of ~5.94% and ~10.32% in the last three months and six months. The company remains confident of delivering strong growth in FY20 and continues to deliver sustainable profit growth for shareholders. Considering the aforesaid facts, we have valued the stock using one relative valuation method, i.e., Price to Earnings Multiple. For the matter,we have taken the peer group – Class Ltd (ASX: CL1), Citadel Group Ltd (ASX: CGL), Data#3 Ltd (ASX: DTL), etc., and arrived at a target price of lower double-digit (in % terms). Hence, looking at the current trading levels and business prospects, we recommend a “Buy” rating on the stock at the current market price of $4.44, down 0.226% as on 16 January 2020.

 
OTW Daily Price Chart (Source: Thomson Reuters)
 

Bravura Solutions Limited

BVS Details

Reported Growth Across All Segments: Bravura Solutions Limited (ASX: BVS) is engaged in the operation of software-based products and services usedin the wealth management and funds administration.

FY19 Operational Highlights for the Period ended 30 June 2019: BVS declared its full-year results, wherein the company reported revenue at $257.7 million, depicting a growth of 16% on y-o-y basis. EBITDA came in at $49.1 million, up 27% from FY18. EBITDA margin stood at 19% as compared to 17.4% in FY18. The company reported NPAT at $32.8 million as compared to $27 million in the previous financial year. NPAT margin improved to 12.7% from 12.2% in FY18. Revenue from Wealth Management segment grew by 14% while EBITDA grew by 17% on y-o-y basis. Funds Administration revenue grew by 22% on y-o-y basis followed by an EBITDA growth of 21% on y-o-y basis.


FY19 Income Statement Highlights (Source: Company Reports)

Guidance: As per the Management guidance for FY20, the business expects the sales pipeline to remain strong and NPAT to grow at the mid-teens. While, the company expects the political uncertainty may likely to impact UK sales in the short-term.


Valuation Methodology: Price to Earnings Multiple Approach

Price to Earnings 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 BVS is trading at $5.670 per share with a market capitalization of ~$1.36 billion. At the current market price, the stock is quoting at the upper band of its 52-week trading range of $3.730 to $6.270. The stock has generated negative returns of 46.58% and 21.62% in the last three months and six months. The company reported return on equity at 16.2% during FY19, driven by BVS’s consistent and long-term investment in product development, deep market knowledge and expertise, sound business model, driving significant operating leverage. Considering the aforesaid facts, we have valued the stock using one relative valuation method, i.e., Price to Earnings based multiple approach. For the matter,we have taken the peer group - Hub24 Ltd (ASX: HUB), Netwealth Group Ltd (ASX: NWL), Altium Ltd (ASX: ALU), etc., and arrived at a target price of higher single-digit (in % terms). Hence, we recommend a “HOLD” rating on the stock at the current market price of $5.670, up 1.795% as on 16 January 2020.

 
BVS Daily Price Chart (Source: Thomson Reuters)

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