Appen Limited

APX Details

Financial Performance in 1HFY21 (ended 30 June 2021): Appen Limited (ASX: APX) is one of the leading data annotation providers through AI and machine learning to financial companies, automotive manufacturers, government, healthcare, retail, and tech firms. It operates Global Services and New Markets divisions.

• APX witnessed ~31.5% YoY increase in the revenue of the New Markets division to US$47.8 million in 1HFY21 led by products-driven capabilities, robust performance of the Chinese business units, and new Enterprise customers.
• The revenue from China increased at a CAGR of ~60% in the previous five quarters due to delivery for the leading Chinese technology firm for a wide range of data modalities such as image, speech, and autonomous vehicles.
• The company has been increasingly investing in product development in the past few years. Product development as a % of revenue rose from 4.0% in FY19 to 10.8% in 1HFY21 due to a strategic transitioning from services led delivery model to product.
• The company reported ~US$360 million of revenue and in hand orders as of August 2021, up by ~10% on pcp.

Revenue Breakdown of the New Markets Division; (Analysis by Kalkine Group) 

Key Risks: The company faces industry competition from various global technology companies, technological headwinds, and regulatory changes. Adverse forex rate movements may also impact financial performance.

Outlook:

• The FY21 underlying EBITDA guidance has been revised downwards from US$83 -US$90 million stated in May 2021 to US$81 - US$83 million due to the planned investment in the recently acquired Quadrant Global Pte Limited and COVID-19 impacts on the ad-related project revenue.
• APX expects mid-to-high single-digit revenue growth for the Global Services division and ~25% for the New Markets division in FY21.
• The FY21 underlying EBITDA margins are expected to be in line with FY20.
• APX plans to declare the FY21 financial results on 24 February 2022.

Valuation Methodology: Price to Earnings Per Share 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 APX gave a negative return of ~15.98% in the past three months and a negative return of ~23.35% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $8.000. The stock has been valued using the Price to Earnings Per Share multiple-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’ average P/E multiple, considering lower ad-related services revenue, and downgraded underlying EBITDA guidance, forex risks, and COVID-19 uncertainty. For this purpose of valuation, a few peers like Infomedia Ltd (ASX: IFM), Over The Wire Holdings Ltd (ASX: OTW), Pushpay Holdings Ltd (ASX: PPH) have been considered. Considering the current trading levels, new customer wins, growth in China, accelerating product development, expected growth in the New Markets, & Global Services division, a strong order pipeline, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $8.820, as of 10 February 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

APX Daily Technical Chart, Data Source: REFINITIV  

Dropsuite Limited

DSE Details

Growth in Key Metrics in Q4FY21 (Ended 31 December 2021): Dropsuite Limited (ASX: DSE) offers a cloud software platform to companies for restoration, backup, and recovery of data and business information. Its cloud products consist of Email Archiving, Website Backup, Google Workspace Backup, Office 365 Backup.

• The annual recurring revenue (ARR) grew to $15.2 million, up by 70% on pcp in Q4FY21 because of robust business momentum.
• The ARPU (Average Revenue Per User) rose by 13% on pcp and 1% on Q3FY21 to $1.95 per month during the December 2021 quarter.
• The normalised operating cash flows rose to $0.23 million, depicting a rise of 214% YoY and 162% from Q3FY21.
• DSE exited the quarter with ~$21.6 million cash on hand as of 31 December 2021 compared to~$2.48 million as of 31 December 2020.

Cash Receipts & Net Operating Cashflows, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of generating profits, protecting data from cyber security attacks, and regulatory headwinds. It also faces reliance on the reseller partner network for distribution.

Outlook:

• The company plans to bring more distribution partners onboard and concentrate on growing product differentiation and new product launches to remain the preferred vendor for data backup.
• DSE plans to achieve operating EBITDA profitability for FY21 and invest more in talent recruitment and expansion of sales and marketing activities. DSE aims to continue growing ARR via a robust sales pipeline and existing partner network.
• DSE is also pursuing accretive M&A opportunities to take benefit of the current internal growth and robust market tailwinds around data safety and regulation.

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 DSE gave a negative return of ~17.02% in the past three months and a negative return of ~17.02% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.155 - $0.285. 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 the continued trend of net losses, negative ROE, and risks of cyber security. For this purpose of valuation, a few peers like Xref Ltd (ASX: XF1), Class Ltd (ASX: CL1), TechnologyOne Ltd (ASX: TNE), and others have been considered. Considering the current trading levels, growing ARR, positive net operating cashflows, plans to grow partnerships, global presence, and revenue diversification, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.195, as of 10 February 2022, 12:05 PM (GMT+10), Sydney, Eastern Australia.

DSE Daily Technical Chart, Data Source: REFINITIV  

Laybuy Group Holdings Limited

LBY Details

Decrease in the Substantial Shareholding: Launched in 2017, Laybuy Holdings Limited (ASX: LBY) is a provider of BNPL (buy now, pay later) services. It has collaborated with over ~12,000 retail merchants and is present in Australia, New Zealand, and the UK. On 7 February 2022, Perennial Value Management Limited (PVM) decreased its shareholding from 10.09% to 9.02% in LBY.

Business Update for Quarter Ended 31 December 2021 (Q3FY22):

• Growth Acceleration in the UK Business: LBY witnessed robust GMV growth of 68% Y-o-Y in December 2021 especially in the UK market which supported to achieve the record GMV of ~NZ$1 billion during Q3FY22.
• Merchants Addition: LBY added ~2,000 merchants during Q3FY22 including the following:
• ANZ Merchants: PAS Group, Kathmandu (NZ), Brand Collective, Bing Lee, and PVG Group Australia
• UK Integrated Merchants: Dam Health, UKSoccershop, Hexxee, Bodybuilding Warehouse, and Creps Locker.
• Operational Improvements: LBY executed multiple platform enhancements such as launching a new customer service feature of Hugo the Automated Bot to boost customer experience and drive overall efficiency.
• LBY held aggregate cash sources of ~NZ$32.3 million as of 31 December 2021, constituting cash and cash equivalents of NZ$18.7 million and NZ$13.6 million availed from the fund’s settlement with the payment processing providers.

Key Metrics Performance Q3FY22 Vs Q3FY21; (Analysis by Kalkine Group)

Key Risks: The company faces forex rate fluctuations due to business in different locations and risk of fraud which can be committed by merchants, customers, employees, etc. on LBY’s products. It risks systems failure of its own and third-party services providers due to cyber security attacks.  

Outlook:

• LBY plans to prioritise growth expansion in the UK, driven by the virtual card offerings through Tap to Pay in-store and App Exclusives.
• In ANZ, LBY expects steady growth momentum during FY22 as the merchant offering expands.
• Implementation of further initiatives such as new advertising offerings in the LBY app is expected to provide additional revenue and grow the net transaction margin (NTM).
• LBY is advancing on track to meet the revised FY22 revenue guidance which is expected to grow ~60-70% on FY21, lower than the target declared in April 2021.

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 LBY gave a negative return of ~67.05% in the past three months and a negative return of ~75.86% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $0.135. 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’ average EV/Sales multiple, considering the continuing net cash outflows, and the recent addition of a £30 million debt facility in October 2021 to fund the UK business growth. For this purpose of valuation, a few peers like Openpay Group Ltd (ASX: OPY), Sezzle Inc (ASX: SZL), Bravura Solutions Ltd (ASX: BVS), and others have been considered. Considering the current trading levels, decent financial performance in Q3FY22, expected revenue growth, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.140, down by ~3.449% on as of 10 February 2022.

LBY 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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