Infomedia Limited

IFM Details

AGM Rescheduled: Infomedia Limited (ASX: IFM) provides service, parts, data insights, and e-commerce solutions to the Automotive industry. IFM will now conduct an online AGM (Annual General Meeting) on 25 November 2021 instead of originally scheduled on 16 November 2021.

Interim CEO Appointed: On 18 October 2021, IFM stated that Jonathan Rubinsztein will step down from the role of CEO & MD. Jim Hassell, a Non-Executive Director, will serve as the interim CEO, effective immediately, while the firm searches for a replacement.

Shareholding Change: Aware Super Pty Limited ceased to be a substantial holder in IFM on 10 September 2021 and disposed of 1.71 million fully paid ordinary shares held.

FY21 Takeaways:

• Steady Performance in FY21: The revenue increased to $97.44 million, a rise of ~3% Y-o-Y, and EBITDA rose to $47.6 million, up by ~3.5% on FY20.
• Lower Cash EBITDA: The cash EBITDA stood at $20.42 million in FY21, a decline of 3.9% on pcp because of platform launch and acquisition costs of the US-based, SimplePart buyout, an e-commerce platform company.
• NPAT Declined: The statutory NPAT amounted to $15.969 million in FY21, down by 13.9% YoY. Nevertheless, the NPAT before earnouts from acquisitions was up by 8% YoY from $20.03 million in FY20.
• Transitioned to SaaS Platform: IFM has shifted away from the usage of legacy software to the Next Generation SaaS platform for integrated parts and services during FY21.
• Entered New Contracts: The company closed $35 million of new, multi-year agreements (TCV) from the top 20 contracts in FY21.

Revenue & NPAT Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces regulatory delays, COVID-19 impact of delayed project installations and on revenue conversion, forex changes, stiff competition, and integration risks.

Outlook:

• IFM provided revenue guidance of $117 - $123 million for FY22, up by more than 20% YoY.
• The management is confident of achieving a double-digit growth rate, owing to the core business momentum and full-year revenue contribution from SimplePart. The structural changes in the global automotive industry are expected to generate opportunities and emphasize the need for more extensive automotive data.
  

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of IFM gave a negative return of ~2.71% in the past three months and a negative return of ~10.31% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.255 - $2.020. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its decline in cash EBITDA, statutory NPAT, capitalised development and acquisition costs in FY21, integration risk, data security risks, etc. For this purpose of valuation, few peers like Hansen Technologies Limited (ASX: HSN), Iress Limited ASX: IRE), Praemium Limited (ASX: PPS), and others have been considered. Considering the current trading levels, steady earnings growth, new agreements in FY21, higher revenue guidance and positive industry outlook for FY22, valuation, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.420, as on 19 October 2021, 11:29 AM (GMT+10), Sydney, Eastern Australia.

IFM Daily Technical Chart, Data Source: REFINITIV 

ELMO Software Limited

ELO Details

Release of Escrow Shares: ELMO Software Limited (ASX: ELO) provides SaaS and cloud-based payroll, expense, and people management solutions to mid-market enterprises and small businesses. On 1 October 2021, ELO issued 512,885 performance shares under the code ELOAA to James Haslam, a key management personnel (KMP) under an employee incentive scheme. ELO had notified regarding the release of 699,765 fully paid ordinary shares from the voluntary escrow on 7 October 2021. Post the release of these shares, 2,805,650 shares are held in the escrow account.

FY21 Highlights:

• Acquired UK-Based Webexpenses: ELO acquired Webexpenses in December 2020 and expanded its mid-market offering. ELO has started to cross-sell the Webexpenses solution to its customers in FY21 and plans to sell HR modules to Webexpenses’ customers. The acquisition increases ELO’s estimated TAM (total addressable market) to $10.6 billion.
• Entry in the Small Business Segment: The company forayed into the small business segment via the acquisition of Breathe in October 2020. ELO expanded the modules available under the Breathe platform and launched in Australia in 2HFY21.
• Growth in ARR: The FY21 ARR (Annualised Recurring Revenue) amounted to $83.8 million, up by 52.1% Y-o-Y, due to a rise in remote working, adoption of cloud-based HR technology, and recovery in business confidence.

Annualised Recurring Revenue Trend from FY19-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces competition from industry peers, technological changes, and integration risks from various acquisitions. ELO also faces regulatory changes while expanding in new markets of APAC and the UK. 

Outlook:

• ELO has completed the integration of Webexpenses and plans to leverage Webexpenses’ operational presence in the UK to roll out its mid-market HR solution.
• ELO plans to ramp up launch activities of Breathe solution in the Asia-Pacific (APAC) region in FY22, given an estimated addressable market of $2.2 billion for the small business segment.
• The company has provided ARR guidance in the range of $105-$111 million, revenue between 90.5 - 95.5 million, and EBITDA in the range of $1.0 - 6.0 million for FY22.
  

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of ELO gave a positive return of ~5.022% in the past three months and a negative return of ~17.41% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.200 - $7.440. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering improved financial metrics in FY21, higher earnings forecast for FY22 over FY21, and expansion plans for Breathe solution. For this purpose of valuation, few peers like Hansen Technologies Limited (ASX: HSN), Iress Limited (ASX: IRE), Class Limited (ASX: CL1), and others have been considered. Considering the current trading levels, growth in ARR, top-line, and cash receipts, recovery in mid-market segment & small business (Breathe) in 2HFY21, valuation upside, improved earnings forecast for FY22, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $4.550, as on 19 October 2021, 11:20 AM (GMT+10), Sydney, Eastern Australia.

ELO Daily Technical Chart, Data Source: REFINITIV

Integrated Research Limited

IRI Details

Director Resignation: Integrated Research Limited (ASX: IRI) engages in the design, development, implementation, and sale of systems and applications management computer software for business-critical computing. Recently, IRI announced the resignation of Mr. Garry Dinnie from the Board, effective from 31 October 2021.

FY21 Financial Highlights:

• Rebound in 2HFY21: IRI reported $44.4 million revenue in 2HFY21 versus $34.1 million in 1HFY21. The NPAT for 2HFY21 stood at $7.8 million, which wasclose to the break-even point in 1HFY21. Lower license sales resulted in a 29% YoY fall in revenue in FY21.Notably, license sale in FY21 went down 34% on pcp an came in $47.4 million.
• Platform Extension & New Partnerships: In FY21, IRI extended the capabilities of its Prognosis Platform, security enhancements via newly built Cloud framework, and released four new SaaS-based products on the platform. IRI signed a strategic alliance with BT, extended partnership with ACI Worldwide. Led by these strategic improvements, revenue rose by 30% and NPAT by 210% on 1HFY21.
• Improved Liquidity: The company held $12.1 million cash and cash equivalents, up by 25% on pcp as of 30 June 2021.

Revenue & NPAT Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company is exposed to risks related to COVID-19 deferred purchases, disruptive customer buying patterns, longer sales cycles, and shorter contract terms. Moreover, IRI faces adverse forex rate conversions.  

Outlook:

• In FY21, IRI generated momentum from business improvements and has built a strong new opportunities pipeline to flow into FY22.
• IR expects deeper demand for payments insights from varied user types and customers’ business priorities to evolve in the next five years.
• IRI plans to develop analytics capabilities in the payments space and will release High-Value Payments solution offering in FY22.
• The company will continue with product & Prognosis hybrid cloud platform innovation and fast- track the transformation execution.
• The company plans to raise investment in brand building and strategic market positioning to lift the brand profile.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of IRI gave a negative return of ~22.24% in the past three months and a positive return of ~41.54% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.535 - $3.890. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its lower license sales revenue and NPAT in FY21, risk of adverse forex movements COVID-19 disruptions, etc.  For this purpose of valuation, few peers like Infomedia Limited (ASX: IFM), Adacel Technologies Limited (ASX: ADA), Iress Limited (ASX: IRE), and others have been considered. Considering the current trading levels, the turnaround in earnings in 2HFY21, stringent cost control, product, & technology improvements in FY21, increased demand for monitoring and analytics tools in the future, valuation, and related key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.555, as on 19 October 2021, 11:12 AM (GMT+10), Sydney, Eastern Australia.

IRI Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: 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.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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