Netlinkz Limited

NET Details

Prospectus & Entitlement Acceptance Forms Despatched: Netlinkz Limited (ASX: NET) is a cloud network solutions provider. It offers Netlinkz VSN ‘Network as a Service’ as its main product for companies of all sizes. As of 27 May 2021, the market capitalisation of NET stood at ~$64.63 million. On 20 May 2021, NET released document -Appendix 2A regarding the issue of 530.21 million new shares expected on 9 June 2021 as part of the Retail Entitlement offer already announced. On 19 May 2021, NET announced the despatch of Entitlement Acceptance Forms and Prospectus to the Eligible Shareholders (Retail) with a timetable for important dates for the Rights Issue.

Simplification of Capital Structure: On 9 March 2021, NET announced its decision to simplify the capital structure by reducing the number of issued options after seeking shareholder approval. On 14 May 2021, it announced shareholders’ approval via its Notice of Meeting submitted to the ASX.

Trading Halt & Institutional Entitlement Offer (IEO) Completed: The company requested to place its shares in a trading halt on 11 May 2021, pending completing institutional entitlement offer. The trading halt was lifted on 13 May 2021 when NET notified the investors of the completion of the Institutional offer. NET has announced a non-renounceable pro-rata offer of 1 new fully paid ordinary share for every 4.2 fully paid ordinary share owned. The shares will be issued to the Eligible Shareholders as of the Record Date (13 May 2021). The offer was fully subscribed, and NET raised ~$1.7 million. The company is expected to allot 69 million new shares at $0.025 per share on 21 May 2021, and shares will start trading on ASX from the same date. The offer price reflects a 13.8% discount on the last closing price on 10 May 2021. The new shares will rank identically with the existing shares on issue in all respects.

Retail Entitlement Offer (REO) to Eligible Shareholders: NET expects to raise ~$13.3 million via the retail offer. The retail offer was opened on 18 May and closes on 2 June 2021 (5 PM AEST). As of 13 May 2021 (the Record Date), retail shareholders are eligible to invest in new shares at the offer price. New shares will be issued under the retail offer on 9 June 2021 and expected to start trading on ASX from 11 June 2021. Eligible Shareholders who take up their Entitlements in total are also invited to apply for additional (new) shares in the oversubscription facility. Issuance of additional new shares is discretionary. Since the Entitlement Offer is non-transferable, it will not be tradeable on ASX or elsewhere. The Eligible Shareholders who do not wish to take up full Entitlement will get shares for those Entitlements accepted and decrease their percentage shareholding in NET.

Planned Utilisation of Offer Proceeds: NET plans to raise ~$15.5 million (before costs) to fund expansion in China, meet working capital requirements, repay outstanding convertible notes and its short-term loan, afford sales costs in North America, Europe, and other locations, and meet its offer costs.

Key Takeaways from March Quarter: NET posted an increase in revenue to $2.9 million in Q3FY21 versus $1.6 million in Q3FY20. The Group revenues increased by 423% YoY for YTD21. During Q3FY21, NET entered a binding contract with Uni Systems Information Technology, and inked a distribution agreement with Frame Communications in the UK. Asian revenues lead growth, with revenue from China up by 89% on pcp. In March 2021, NET had announced to simplify the capital structure and decided to cancel up to 249 million options and rights to options for consideration. It has now despatched the offer to option holders and implement it subject to shareholders approval in their meeting in May 2021. NET had a cash reserve of $3.1 million as of 31 March 2021.

Key Highlights; Analysis by Kalkine Group

Key Risks: The company faces foreign exchange fluctuations as it undertakes certain transactions in foreign-denominated currency. It also faces the threat of COVID-19 uncertainties and potential disruption in client networks. 

Outlook: Given the revenue seasonality, NET anticipates a robust Q4FY21 and the proportion of recurring revenue to increase. It expects an increase in recurring revenue by ~50% in the next three years due to its steady client base and global diversification. It also predicts the quarterly revenue split to be more consistent.

Stock Recommendation: NET is expected to issue 530.21 million new shares on 9 June 2021 as scheduled in the Prospectus submitted on 11 May 2021. The stock of NET gave a negative return of 41.63% in the past three months and a negative return of 62.78% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.024. On a TTM basis, the stock of NET is trading at an EV to Sales value multiple of 4.9x lower than the industry (Software & IT Services) median of 6.6x. Considering the current trading levels, increase in top-line for Q3FY21 and YTD21, new agreements signed in Q3FY21, higher revenue expectations for Q4FY21, valuation on a TTM basis, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.025 on 27 May 2021.

NET Daily Technical Chart, Data Source: REFINITIV 

Kyckr Limited

KYK Details

Key Takeaways from March Quarter Results: Kyckr Limited (ASX: KYK) is an information aggregator and service provider to banks and financial institutions seeking protection against money laundering, terrorism financing, and fraudulent tax practices. As of 27 May 2021, the market capitalisation of the company stood at ~$14.78 million. KYK posted a record revenue of $645,000, up by 10% YoY in Q3FY21. This record quarterly growth was underpinned by the increase in Enterprise business, up by 22% YoY in Q3FY21.

The monthly revenue for March 2021 was also the highest at $274k, up 39% YoY. During Q3FY21, KYK has partnered with BAE Systems Applied Intelligence and entered a new one-year contract with a global top 15 life assurance firm to integrate its solution into the client’s Customer Lifecycle Management platform. It reported the near completion of the product development of the UBO Verify service. KYK has a cash balance of $5.7 million as of 31 March 2021.

Top-Line & Net Income for 1HFY17-1HFY21; (Analysis by Kalkine Group)

New BFSI Contracts Signed: On 14 April 2021, KYK declared entering twelve contracts totalling $788,000 calendar year to date with BFSI companies. It has not disclosed the client list publicly due to the confidential nature of its business and has declared that the counterparties and contracts are not material. It also announced achieving its first annual Ultimate Beneficial Owner (UBO) (not of UBO Verify) data sale of $155,000 for a single partner in Q3FY21.

Key Risks: The company is exposed to the risk of technological disruptions, regulatory changes in the industry, partnership issues, delay in the corporate client onboarding activity and launch of its services owing to COVID-19 restrictions and uncertainty. 

Outlook: It plans to promote its products in its leading jurisdictions with the increase in the adoption of KYC technology and penalties on companies due to compliance issues. It is in the process of launching UBO Verify and has sped up its marketing activity in advance of May. KYK forecasts to accrue $209,000 in FY21.

Stock Recommendation: The stock of KYK gave a negative return of 34.84% in the past three months and a negative return of 48.19% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.040. On a TTM basis, the stock of KYK is trading at a price to book value multiple of 0.9x, lower than the industry (Professional & Commercial Services) median of 2.7x, thus seems undervalued. Considering the low trading levels, a record increase in March 2021 and Q3FY21 revenue, increase in Enterprise business revenue, the launch of new service in May, new partnerships signed, valuation on a TTM basis and associated risks of the pandemic, revenue diversification, and new client onboarding, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.043 on 27 May 2021.

KYK Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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