Appen Limited

APX Details

Appen Limited (ASX: APX) is a global leader in the development of high-quality, human-annotated datasets for machine learning and artificial intelligence (AI). The company has a market capitalization of ~$2.02 billion as on 13^th April 2021.

Results Performance (Year ended 31 December 2020)

Revenue of the company for the full-year period increased by 12% to $599.9 million on the previous year. Underlying EBITDA for the period stood at $108.6 million, an increase of 8% on the previous year. However, the underlying profit for the period decreased by 1% to $64.4 million compared to $64.7 million in the prior year. The results of the company were impacted by the combinations of new customers and projects, higher committed revenue and growth in China.   

The cash balance at the end of the period stood at $78 million. The Board of Directors declared a final dividend of 5.5 cps (50% franked), an increase of 10% on the previous year.

Key Data (Source: Company Reports)

Outlook:

The company delivered a strong set of earnings for FY20 and it is expected to continue with its strong performance in the upcoming years underpinned by ongoing investment in the platform (including AI-enabled annotation) which is improving productivity and strengthen its competitive position. It has also expanded the number of projects across its top five customers by 34% which support new product developments.

The company expects its underlying EBITDA for the full-year ending 31 December 2021 to be in the range of $120 million - $130 million at constant currency, representing growth of 18% - 28% on FY20 underlying EBITDA (ex. FX gain) of $101.8 million.

Valuation Methodology: P/E Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock witnessed a heavy selling pressure from its high of $43.47 and made the low of $15.19. From the low, it has been trying to retrace up but attracts selling at high price. For the ongoing week, the stock has given a flattish close at $16.62. The technical indicator RSI with a reading around 30 suggests that the stock is in the oversold zone.

Going forward, the stock may have resistance around the 23.6% retracement level of $21.86 whereas support could be around the previous low of $15.19.

Stock Recommendation:

The company’s gross margin and net margin for FY20 stood at 42.1% and 8.4%, better than the FY19 result of 42.0% and 7.8%, respectively implying an improvement in the operating performance. ROE for FY20 stood at 10.4%, better than the industry median of -2.5%, implying that the company generated a better return for the shareholders. Its current ratio for FY20 stood at 2.58x, better than the industry median of 1.77x, implying that the company possesses better capabilities to meet the short-term obligations than the peer group. Its Debt-to-Equity ratio for FY20 stood at 0.05x, lower than the industry median of 0.49x, depicting a reasonable leverage position of the company.

We have applied P/E Multiple Based Relative Valuation (on an illustrative basis) and the target price reflects a rise of high single-digit (in % terms). We have applied a slight premium to P/EPS Multiple (NTM) (Peer Average) considering increase in customer base, enhancing shareholder’s value, decent cash position as well as outlook.

The stock fell by ~54.1% in 6 months. It has made a 52-week low and high of $15.150 and 43.660, respectively.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $16.610 per share, up by 0.911% on 13^th April 2021.

APX Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

Altium Limited 

ALU Details

Altium Limited (ASX: ALU) deals in technologies with which the company helps organizations and design communities to innovate, collaborate and create connected products while remaining on time and budget. The company has a market capitalization of ~$3.60 billion as on 13^th April 2021.

Results Performance (Half-Year ended 31 December 2020)

Revenues of the company for the interim period stood at US$79.97 million, a decline of 3.8% on the previous corresponding period (pcp) due to the pandemic conditions in the US, Europe and licence compliance activities in China becoming more difficult post-COVID. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for the period stood at US$27.00 million, a decline of 15.1% on pcp. Profit after income tax expense (PAT) stood at $16.62 million, a decline of 12.1% on pcp. Net tangible assets per ordinary security stood at 106.12 cents as compared to 103.09 cents in the pcp.

The Board of Directors declared an interim dividend of AU 19 cents per share, with payment date and record date of 23 March 2021 and 2 March 2021, respectively.

Key Data (Source: Company Reports)

Outlook:

Despite the macro environment remaining uncertain with the outbreak of the new COVID variant, the large-scale vaccination programme does give the hope that the economic activities will return to new normal soon. Further, there has been a rebound in electronic manufacturing which augurs well for the company’s PCB design growth.

The company is confident about the growth momentum of first half continuing in the second half with its pivot to the cloud and move to digital sales. It is also confident about achieving the updated flight path to 2025 target US$500 million and 10,000 subscribers, ex-TASKING.

In the meantime, the company has provided guidance of revenue to be in the range of US$190 million to US$195 million and EBITDA margin to be in the range of 37% to 39% for the full year FY21.  

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock from its low of $24.75 has been trending up, and having touched the 23.6% retracement level of $28.39, it gave close at $28.16 for the ongoing week. The technical indicator RSI with a reading around 42 and a curve at the end pointing up, suggests gaining of bullish momentum for the stock.

Going forward, the stock may have resistance around the 38.6% retracement level of $30.64 whereas support could be around $26.00.

Stock Recommendation:

The company’s gross margin and EBITDA margin for H1FY21 stood at 97.5% and 30.7%, better than the industry median of 79.7% and 24.5%, respectively implying strong operating performance for the company. Its net margin for H1FY21 stood in-line with the industry median of 20.7%. Its current ratio for H1FY21 stood at 2.13x, better than the industry median of 1.97x, implying that the company possesses better capabilities to meet the short-term obligations than the peer group.

We have applied EV/Sales Multiple Based Relative Valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering improvement in liquidity position which could help the company moving forward in meeting its objectives.

The stock fell by ~26.5% in 6 months. It has made a 52-week low and high of $24.880 and $40.210, respectively.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $28.120 per share, up by 2.366% on 13^th April 2021.

ALU Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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