Speedcast International Limited

Acquisitions in FY18 & FY17 Supported SDA: Global network & satellite communications service provider, Speedcast International Limited (ASX: SDA) is headquartered in Hong Kong. The company recently announced that UBS Group AG and its related bodies corporate have increased their voting power from 12.84% to 13.84% and was done on April 8, 2019. In another update on ASX, it presented its FY18 full year statutory report. It highlighted an increase in its revenue by 21% to USD623.1 million, including USD7.5m contribution from the two acquisitions wrapped up in 2018 and the full year impact of acquisitions completed in 2017.Strong organic growth was observed in its three divisions i.e., Maritime, Government, and Enterprise & Emerging markets, however,energy division revenue continued to decline because of ongoing delays in the offshore energy market recovery.

The underlying EBITDA grew by 7% to US$132 Mn, whereas the underlying EBITDA margin declined from 24% in FY17 to 21.2% in FY18, due to dilution from the UltiSat acquisition, which closed in November 2017, phase 1 of the NBN contract in the EEM division, and the mix-effect of reduced earnings in the Energy division. The Board of Directors declared an unfranked final dividend of 4.8 cents per share with the payment date of May 23, 2019 and record date of March 8, 2019.


FY2018 Financial Metrics (Source: Company Reports)

What To Expect From the Company: The company expects a positive outlook for Maritime with strong backlog and pipeline in Commercial Shipping and in Cruise as they increase market share and customers’ connectivity needs continue to grow. Even though the timing of Energy market recovery is uncertain, the company’s market share as well as strong customer base position it well to benefit from the anticipated market recovery. The government revenue is anticipated to grow strongly in FY19 and the past year acquisition of Globecomm is expected to help the company in winning new contracts.

Stock Recommendation: The stock of Speedcast International generated positive YTD return of 31.27% while, in the past three months, it posted the return of 18.75%. However, in the past six months, the company’s stock delivered the return of -8.61% which reflects that the stock is quite volatile.  Hence, considering the aforesaid parameters, we give a “Speculative Buy” recommendation on the stock at the current market price of $3.730 per share (up 3.324% on April 11, 2019).
 

Jumbo Interactive Limited

Addition to S&P/ASX 300 Index:Jumbo Interactive Limited (ASX: JIN) is the leading digital retailer of national jackpot lotteries and charity lotteries. Recently, the company announced that JIN stock, as per March 2019 Quarterly Rebalance of the Ordinaries S&P Dow Jones Indices, was added to S&P/ASX 300 Index, effective from March 18, 2018.

What To Expect From JIN: In its FY 2019 outlook update, its Total Transaction Value (TTV) is expected to grow by around 62% to ~$296.4 Mn as compared to $183.1 Mn in FY18.  Its revenues is expected to grow by around 53% to ~$60.8 Mn as compared to $39.8 Mn in FY18, mainly driven by new customer acquisition expectation in H2FY19.

The Company continues to deploy towards software platform and marketing to place it in the best possible position to take advantage of the increased levels of jackpot activity.


FY19 Guidance (Source: Company Reports)

Stock Recommendation:Jumbo’s share generated positive YTD return of 127.05%. It is trading close to its 52 weeks high, which indicates a good possibility of correction. Its gross margin, EBITDA margin, and net margin stood at 96.7%, 62.8%, and 40.5% in H1FY19 better than the industry median of 56.9%, 25.6%, and 10.8% respectively. On the valuation front, its P/E multiple stood at 48.30x higher than the industry median of 15.7x, displaying overvalued position at the current juncture. The stock is trading towards its 52-week higher levels and, therefore, it can be presumed that the stock price has discounted most of the key growth catalysts at the current levels. Hence, we give a “Sell” recommendation on the stock at the current market price of $16.920 per share (up 1.805% on 11 April 2019).  
 

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