Stocks’ Details

Computershare Limited 

Enriched Dividend History: Computershare Limited (ASX: CPU) is involved in the provisioning of investor services, employee share plan services, business services and communication services. The market capitalisation of the company stood at ~$6.9 Bn as on 9^th September 2020. During FY20, the company remained focused on its key priorities, which include restructuring of its UK Mortgage Services business, and delivering measurable organic growth in issuer services. During FY20, the company reported revenue amounting to US$2.3 billion, reflecting a fall of 1.9% on a year over year basis. EBITDA for the period experienced a fall of 3.7% to US$650 Mn. The company has resolved to pay a final dividend of AUD 0.23 per share on 16^th September 2020 despite the uncertainty in the year, due to COVID-19 outbreak. CPU also paid an interim dividend of AUD 0.23 per share on 19^th March 2020.

Dividend History (Source: Company Reports)

Guidance: For FY21, the company expects management EPS to decline by around 11% to 50.0 cps. In addition, CPU is well-placed to self-finance its growth strategies. The company is also focused on long-term planning, disciplined execution, investing for growth, and driving efficiencies. 

Key Risks: The company is exposed to operational risk as the company deals with a high volume of daily transactions that can be exposed to data loss and security breaches. In addition, the business is also sensitive to financial risk and strategic and regulatory risk. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:  Net margin of the company stood at 11.1% in 1H FY20 as compared to the industry median of 6.7%. The stock of CPU has corrected 7.81% and 6.59% in the past one and three months, respectively. In addition, the stock is trading slightly below its 52-week low-high average of $8.270-$18.390, respectively. On the technical analysis front, the stock of the company has a support level of ~A$12.098 and a resistance level of ~A$13.993. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Link Administration Holdings Ltd (ASX: LNK), Perpetual Ltd (ASX: PPT), Codan Ltd (ASX: CDA), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the performance in FY20, enriched dividend history and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $12.360 per share, down by 3.059% on 9^th September 2020.

Codan Limited 

Wining of New Contract: Codan Limited (ASX: CDA) is a technology company that designs, manufactures, and markets a diversified range of high value-added electronic products for sophisticated consumer markets, governments, and businesses. The market capitalisation of the company stood at ~$1.96 Bn as on 9^th September 2020. Recently, the company announced that it has secured a USD$10 million contract with a large African government to supply Sentry-H^TM radios and accessories. The company is likely to deliver this order in 2H FY21. This contract bolsters CDA’s strength in providing such equipment to the African market and improves its strategy to successfully penetrate the security and military sector globally.

During FY20 the company achieved the highest sales of $348 million in its history. During the same year, the company reported a rise of 40% in statutory net profit after tax to $64.0 million. The company declared a final dividend of 11.0 cents per share, this took the full-year dividend to 18.5 cents, reflecting a rise of 32% against FY19. The company will pay the final dividend on 11^th September 2020.

Financial Summary (Source: Company Reports)

Outlook: The company seems well-placed to achieve growth in FY21. CDA anticipates strong demand for its metal detection products. The company is scheduled to conducts its Annual General Meeting on 28^th October 2020.

Key Risks: The company’s business is exposed to numerous risks, including credit risk, liquidity risk, market risk and operational risk. The company minimizes the concentration of credit risk by undertaking transactions with a large number of customers in various countries.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 55.3% and 25.7% in 1H FY20 as compared to the industry median of 23.6% and 15.8%, respectively. Current ratio of the company stood at 2.14x in 1H FY20 against the industry median of 2.04x. This indicates the company is well-placed to settle its short-term obligations as compared to the peer group. The stock of CDA is inclined towards its 52- week high level of $11.730. On the technical analysis front, the stock of the company has a support level of ~A$10.351 and a resistance level of ~A$11.094. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Link Administration Holdings Ltd (ASX: LNK), Iress Ltd (ASX: IRE), and  Pushpay Holdings Ltd (ASX: PPH), and arrived at a target price of high single-digit upside (in percentage terms). Thus, in light of the winning of the new contract, decent liquidity position and growth in key margins, we give a “Hold” recommendation on the stock at the current market price of $10.740 per share, down by 0.923% on 9^th September 2020.

BrainChip Holdings Ltd 

Addition to S&P/ASX All Technology Index: BrainChip Holdings Ltd (ASX: BRN) is engaged in the development of software and hardware-accelerated solutions for advanced artificial intelligence (AI) and machine learning applications. The market capitalisation of the company stood at ~$1.14 Bn as on 9^th September 2020. As per the recent quarterly rebalance of the S&P/ASX Indices, the company will be added to S&P/ASX All Technology Index, which will be effective from 21^st September 2020. 

BRN to Join Forces With VORAGO: In another update, the company notified the market that it has entered into a collaboration deal with VORAGO Technologies via signing the Akida Early Access Program Agreement. This collaboration will support the Phase 1 NASA program for the neuromorphic processor, which meets spaceflight requirements. BRN added that the Early Access Program Agreement includes payments, which are intended to offset its expenses to support the partner needs.

1HFY20 Key Highlight: BRN generates its revenue from BrainChip Inc., in the USA, and France based subsidiary BrainChip SAS. During 1H FY20, the company recorded revenue amounting to US$13,397 as compared to US$66,635 in 1H FY19. During the half-year, BRN witnessed a rise of 36% in total expenses to US$6,212,777.

Key Financials (Source: Company Reports)

Growth Prospects: Looking forward, the company anticipates growth opportunities in emerging markets of Smart Sensors, Smart Homes and Smart Healthcare. 

Key Risks:  BRN’s business activities are sensitive to various operational risks, such as commercial viability and delays of new products and technology, delays in the establishment of an effective sales organization, and disruptions in the global economy.

Stock Recommendation: In the month of August 2020, the company reached a Put Option Agreement with LDA Capital Limited and LDA Capital LLC (LDA Capital), wherein the company would receive equity capital of A$29 million in the upcoming 12 months. BRN ended the half-year with consolidated net assets of US$5,894,374, which include cash and cash equivalents of US$5,346,097. On the technical analysis front, the stock of the company has a support level of ~A$0.309 and a resistance level of ~A$0.971. The stock of BRN is inclined towards its 52-week high level of $0.970. Thus, considering the recent collaboration with VORAGO Technologies, addition to S&P/ASX All Technology Index, growth opportunities in emerging markets, and financing facility, we give a “Hold” recommendation on the stock at the current market price of $0.750 per share, up by 2.74% on 9^th September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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