Catapult Group International Limited

 
Positive Free Cash Flows Expected by FY21:Catapult Group International Limited (ASX: CAT) was founded in 2006 in Melbourne and is engaged in the development and sale of wearable athlete tracking and analytics solutions. As on 28 November 2019, the company’s market capitalisation stood at ~$400.88 million with ~190.9 million outstanding shares.
 
Managerial Changes: Catapult Group International Limited recently announced the appointment of Hayden Stockdale as the Chief Financial Officer (CFO) of the company. Hayden will hold the new office from mid-February 2020. On 30 October 2019, the company appointed Will Lopes, the former Chief Revenue Officer of Amazon subsidiary Audible, as the Chief Executive Officer at Catapult. In addition, the company added Michelle Guthrie as a new independent non-executive director on the Board, with her term beginning from 1 December 2019.
 
Key Highlights of FY19: The company declared its financial results for the year ended 30 June 2019, wherein, the company reported revenues of $95.4 million, up 24% y-o-y, primarily due to growth in core elite wearables.Revenue in the Prosumer category witnessed a growth of 54% at $5.3 million. Majority of the sales in FY19 were delivered through the online channel. The higher contribution from the capital revenue was backed by a 54% increase in Prosumer sales.  Annual recurring revenue (ARR) came in at $66.1 million, up 24% on y-o-y. Operating expenses during the period decreased by 9% as compared to the prior corresponding period. EBITDA for FY19 came in at $4.1 million, an improvement of 310% on prior corresponding period EBITDA loss of $1.9 million.
 

Snapshot of Key Metrics (Source: Company Reports)
 
Outlook:Going forward, the company expects robust revenue growth and lower operating expenses as business scalability enhances. The company cross-sells additional products to over 2,800 existing clients. The company is committed to report a positive free cash flow by FY21 and looks forward to continued growth through up-selling additional capacity to existing clients, greenfield sales to new teams, and cross-selling additional products to the existing clients.
 
Stock Recommendation:As per the ASX, the stock gained 57.89% in the past six months. Gross margin of the company stands at 73%, higher than the industry median of 23.5%. This indicates that the company is managing its costs effectively. With the recent managerial changes and a strong cash position, the company is confident on delivering on its growth plans, going forward.Considering the performance in FY19, recent managerial changes and a decent outlook, we give a “Hold” recommendation on the stock at the current market price of $2.110, up 0.476% as on 28 November 2019.

Serko Limited

 
Agreement with Booking.com to Aid Revenue Growth:Serko Limited(ASX: SKO)is a dual listed, (NZX and ASX), travel software company since 2007 which provides integrated, cloud-based corporate travel booking and expense management solutions. The company recently announced that it has closed its share purchase plan of NZ$5 million. The plan received strong support from shareholders and attracted applications worth ~NZ$18 million. The SPP was open to all eligible existing shareholders residing in New Zealand or Australia. As per an announcement dated 25 November 2019, Serko Limited issued 25,000 ordinary shares for a per share consideration of NZ$2.97, on account of exercise of 25,000 options issued under the 2018 Share Incentive Plan.
 
Financial Highlights of 1HFY19:During the six months ended 30 September 2019, the company reported total operating revenue amounting to $14.7 million, up 29% on y-o-y.Total recurring revenues increased by 38% to $13.3 million, during the same period.Operating expenses during the period increased by 46% to $15.7 million as compared to the prior corresponding period expenses of $10.7 million.During the period, the company invested $8.9 million in research and development. Net loss after tax came in at $0.9 million, down 194% y-o-y. Cash at the end of the period stood at $10.25 million, down from $15.7 million as at 31 March 2019. Cash flows from operating activities came in at $1.93 million as compared to $1.63 million in pcp.
 

1HFY19 Highlights (Source: Company Reports)
 
Guidance:Operating revenue for FY20 is expected to witness growth in the range of 20% - 40%. The company expects foreign currency fluctuations and timing of customer onboarding to impact the results. Moreover, the company is continuously expanding its global network, specifically in continental Europe and North America.
 
Stock Recommendation:As per the ASX, the stock gained 27.87% in the past six months and is currently trading very close to 52-week high of $4.750, with a market capitalisation of ~$409.78 million. In FY19, ROE of the company stood at 9.4% as compared to the industry median of 12.6%. The company also entered into an agreement with Booking.com to promote Serko Zeno growth, which is expected to provide a material uplift to revenue in FY21 and beyond. Considering the backdrop of the above factors, we have a wait and watch stance on the stock at the current market price of $4.650, up 4.494% as on 28 November 2019.

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