Bigtincan Holdings Limited

BTH Details

Market Scenario in Which BTH Operates: Bigtincan Holdings Limited (ASX: BTH) provides enterprise mobility software.

• Following the acquisition of BrainShark in FY21, the company got an access to additional market access of US$3.4 billion through Sales Intelligence Market.
• By the end of 2024, Sales Coaching & Training market is likely to reach the toll of US$11.4 billion with a CAGR of 12% during 2020-2024 and the sale enablement market to witness CAGR of 17.4% during 2021-2026 and may reach US$3.08 billion at the end of 2026.

Q1FY22 Financial Highlights

• During the quarter ended 30 September 2021, the company progressed the integration of Brainshark ahead of the implementation plan, with the unification of teams, product offerings, and completion of market-facing activities.
• The company recorded a rise of 218% in cash receipts to $14.4 million over Q1FY21, reflecting a strong cash receipt in a seasonally quieter quarter supported by the contribution of $2.0 million from existing BrainShark, Inc. customers acquired during the quarter.
• The company made cash operating payments of $19.3m, indicating an increase of 67% from Q1FY21; despite this, the company managed to achieve a net positive operating position of $0.2 million.

FY21 Financial Summary:

• Growth in ARR: During FY21, the company witnessed a rise of 48% in Annualised Recurring Revenue (ARR) to $53.1 million, aided by previous investments in building out the sales and marketing capability, causing in the winning of significant new customer opportunities as well as the expansion of existing arrangements.
• Rising Topline: The company delivered strong financial results, evident by the growth of 42% in total revenue to $43.9 million. BTH closed FY21 with a very strong cash position of $56.3 million.

ARR (Source: Analysis by Kalkine Group)

Key Risks:

• Technology Risk: The company is exposed to a risk arising from a shift in new technology, which could change the way of doing business, and operational health could be hampered.
• Dependency on Single Product: The company earns its major portion of revenue from the sale of a single product, being Bigtincan Hub, which may create hurdles for the company to operate in the industry.
• Competitive Pressure: BTH’s operational and financial health could be impacted by the rising market share of the peer as it operates in a very competitive environment.

Outlook:

• For FY22, the company expects to surpass the ARR and revenue of $119 million and $109 million, respectively.
• Looking forward, the company would continue to win new customers in the market and make ongoing investments in innovation which are required to be a main player.
  

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: As on 30 September 2021, the company had cash and cash equivalents of $55.7 million as compared to $56.3 million as on 30 June 2021. The stock of BTH is currently trading below its 52-week low high average of $0.761 - $1.530, respectively. The stock has been corrected by ~9.75% and ~1.07% in the past one and three months, respectively. The stock has been valued using the EV/Sales Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the negative EBITDA margin, negative ROE and risk from dependency on a single product, etc. For the purpose of valuation, peers such as Infomedia Ltd (ASX: IFM), TechnologyOne Ltd (ASX: TNE), Livetiles Ltd (ASX: LVT), and others have been considered. Considering the expected upside in valuation, consistent growth in ARR, growing revenue, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $1.110, down by ~1.334% as on 02 November 2021.

BTH Daily Technical Chart, Data Source: REFINITIV 

Spirit Technology Solutions Ltd

ST1 Details

Completion of Sale: Spirit Technology Solutions Ltd (ASX: ST1) is in the provisioning of IT&T services, which include the provisioning of telecommunication services, cloud services, managed it services and cyber security services. Recently, the company has wrapped up the sale of its non-core consumer residential Internet business for a transaction value of $5.1 million to DGtek Pty Ltd.

• The company’s objective behind the said business sale is to focus on being a leading and fully integrated technology provider of modern digital workplaces to the business market, from SMB to corporates.
• ST1 would utilize the funds received from sale for financing acquisitions, drive organic growth or to meet deferred acquisition payments

Q1FY22 Financial Summary:

• Q1 happens to be a seasonally slower period as compared to Q2 & Q4. Despite this, the company recorded a rise of 98% in revenue to $30.9 million.
• The company recorded a positive underlying EBITDA of $2.0 million, which was attained during lockdowns and a seasonally slower quarter.
• During the quarter, the company continued its integration and transformation program with another two previous acquisitions (Trident and Altitude).

Revenue (Source: Analysis by Kalkine Group)

FY21 Financial Highlights:

• Substantial Growth in Revenue: Backed by strong performances across new business sales in the mid-corporate markets and SMB market, the company posted a growth of 200% in revenue to $104.5 million.
• Turnaround in NPAT: FY21 has also been marked as a turnaround year wherein the company recorded a positive bottom line to ~$4.53 million from consecutive years of losses.

Key Risks:

• Cybersecurity Risk: The company is exposed to a risk arising from the failure to maintain cybersecurity, and its operational health could be at risk.
• Liquidity Risk: Like any other business, the company is also required to maintain vigilant liquidity risk management in order to maintain sufficient liquid assets to pay debts as and when they become due and payable. Any failure in the same may pose a liquidity risk for the business.

Outlook:

• Looking forward, the company is in the process of divesting non-core assets in order to operate in line with its business strategies.
• The company is well placed to navigate the business challenges and take benefits of market opportunities, which is to be supported by product and customer diversification along with structural changes occurring in workplaces.
• The company has scheduled to conduct the 2021 Annual General Meeting on 29 November 2021.

Valuation Methodology: P/E 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: ST1 is already seeing the recovery in the SMB market and is expecting pent up sales demand to rise in Q2 and across 2HFY22. The company closed FY21 with cash and cash equivalents of ~$8.5 million as compared to ~$6.4 million as on 30 June 2020. The stock of ST1 is currently trading near to its 52-week low level of 0.210, offering a decent opportunity for accumulation. The stock has been corrected by ~6.89% and ~27.02% in the past three and six months, respectively. The stock has been valued using P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 led uncertainties, low EBITDA margin, and low ROE, etc. For the purpose of valuation, peers such as Uniti Group Ltd (ASX: UWL), MNF Group Ltd (ASX: MNF), Spark New Zealand Ltd (ASX: SPK), and others have been considered. Considering the expected upside in valuation, substantial growth in revenue, turnaround in the bottom line, decent liquidity position, deleveraged balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.270, as on 02 November 2021.

ST1 Daily Technical Chart, Data Source: REFINITIV  

LayBuy Group Holdings Limited

LBY Details

Addition of New Merchants in Q2FY22: LayBuy Group Holdings Limited (ASX: LBY) provides Buy-Now-Pay-Later (BNPL) payment solution to customers and merchants through its platforms. During the quarter ended 30 September 2021, the company added around 2000 merchants, which include Amazon, ASOS, Nike, B&Q and eBay through App Exclusives as well as direct merchants The Fragrance Shop, Alternative Airlines and InMotion in the UK.

• The company posted a growth of 62% in Gross Merchandise Value (GMV) to NZ$206 million with an annualised GMV of NZ$825 million.
• LBY posted a record income of NZ$10.8 million, reflecting YoY growth of 48%, and Net Transaction Margin (NTM) reached 1.9% for the quarter.
• The company’s active customers reached 322,400 in Q2 as compared to 312,000 in Q1FY22 and 270,000 in Q2FY21.
• As announced on 26 October 2021, the company secured a new debt facility of £30 million with Partners for Growth VI, L.P. (PFG) to support its UK receivables book. The company has agreed to issue warrants to PFG (Warrants), which grant PFG the right to subscribe for 5,679,360 ordinary shares in the company.

Quarterly GMV (Source: Analysis by Kalkine Group)

FY21 Financial Highlights:

• Rise in Income: During FY21, the company recorded continued strong growth in all its key operating metrics, evident by a record Gross Merchandise Value (GMV) of NZ$589 million. As a result, the company’s income rose by 138% to a record NZ$32.6 million.
• Strong Growth in Geographies: The company delivered on its strategic objectives as it witnessed continued record strong growth in New Zealand, Australia and mainly in the United Kingdom.

Key Risks:

• Foreign Exchange Risk: The company is exposed to risk arising from the adverse movement in foreign exchange as it operates in multiple geographies.
• Credit Risk: LBY’s operational and financial health could be impacted by the failure of obligations by the counterparties.

Outlook:

• During FY22, the company is focusing on large UK market opportunities wherein the company is targeting large, influential merchants to drive scale, network effects and brand recognition.
• For FY22, LBY is working to achieve the milestone of NZ$1 billion in Gross Merchandise Value.
• The company is optimistic about its growth from the development of new products. In doing so, LBY entered into a strategic partnership with Rakuten, AWIN and Sovrn in FY21. This is likely to enable customers to use Laybuy at over 5,000 merchants without any merchant integration required, including in-store.

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 company closed Q2FY22 with cash and cash equivalents of NZ$23.3 million as compared to NZ$36.5 million in Q1FY22. This fall was mainly resulted by the repayment of the VPC debt facility during Q2 as well as an increase in the receivables ledger of NZ$7.7 million. The stock of LBY is currently trading near to its 52-week low level of $0.415, offering decent opportunity for accumulation. The stock has been corrected by ~4.08% and ~10.47% in the past one and three months, respectively. The stock has been valued using EV/Sales Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the COVID-19 led uncertainties, negative EBITDA margin, and negative ROE. For the purpose of valuation, peers such as Openpay Group Ltd (ASX: OPY), Sezzle Inc (ASX: SZL), and Splitit Ltd (ASX: SPT) have been considered. Considering the expected upside in valuation, strong growth in geographies, rising income, deleveraged balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.460, as on 02 November 2021, 12:45 PM (GMT+10), Sydney, Eastern Australia.

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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