Appen Limited

APX Details

Strategic Partnership Contract with Mindtech: Appen Limited (ASX: APX) provides annotation data such as text, speech, audio, video, image, etc. with the help of artificial intelligence (AI) to various industries such as financial services, automotive, healthcare, and government, etc.

• The synthetic data market segment is expected to increase to ~$1.15 billion by 2027 at a CAGR of ~48%.
• APX’s investment in Mindtech is a continuation of its strategy to invest capital into product-led businesses to create new training data sources to aid AI lifecycles.
• As a result of the investment, CEO, Mark Brayan, will join the Mindtech Board
• APX doesn’t expect material revenue generation from the partnership due to the early stage of the synthetic data market in 2022.

Shareholding Change: On 25 February 2022, Mondrian Investment Partners Limited increased its shareholding from ~7.37% to ~9.40% in APX.

FY21 (Ended 31 December 2021) Results:

• Both the divisions of APX registered revenue growth with the global services division posting ~5% Y-o-Y growth and the new markets division recording ~21% Y-o-Y increase driven primarily mainly from China in FY21.
• The revenue from non-ad related projects constituted ~76% of total revenue from Global customers in FY21 compared to ~71% in FY20.
• In line with the company’s strategy to grow business share from China, revenue grew rapidly up by ~422% Y-o-Y to ~US$24.7 million in FY21 from new and existing customers of leading mobile, technology, and AV companies.

Growth Trend of Earnings from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological changes, cyber security, and data privacy. It needs to hire and retain talent, manage regulatory changes, and realise synergies from the acquisition.

Growth Plans:

• APX recorded ~US$190 million in revenue and order book at the start of FY22. It is expanding its product range with more pre-labelled data sets, and model evaluation products and continues to invest in its product-led strategy.
• By FY26, APX plans to at least double FY21 revenue, achieve an EBITDA margin of ~20%, and increase the revenue proportion from non-global customers to one-third of its revenue.
• APX also plans to invest in partnerships and identify inorganic growth avenues.

Valuation Methodology: Price to Earnings 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 ~29.17% in the past three months and a negative return of ~35.83% in the past six months. The stock is currently trading near its 52-weeks’ low level of ~$6.080. The stock has been valued using the Price to Earnings-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’ mean P/E multiple, considering a decline in underlying NPAT, cash conversion from EBITDA, and expected increase in 1HFY22 costs due to investment in product and technology, and transformation office costs. For this purpose of valuation, a few peers like Link Administration Holdings Ltd (ASX: LNK), Tesserent Ltd (ASX: TNT), EML Payments Ltd (ASX: EML), and others have been considered. Considering the current trading levels, decent financial performance in 1HFY22, plans to grow revenue, expand the product range, and continuous investment in R&D, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $6.570, as of 8 March 2022, 10:35 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

APX Daily Technical Chart, Data Source: REFINITIV  

Bigtincan Holdings Limited

BTH Details

Growth in Key Metrics in 1HFY22 (Ended 31 December 2021): Bigtincan Holdings Limited (ASX: BTH) offers artificial intelligence (AI) enabled sales enablement software and learning management solutions to retail, life sciences, financial services, manufacturing, energy, government, and energy sectors.

• The company has registered ~75% CAGR in Annualised Recurring Revenue (ARR) and ~69% CAGR in operating revenue in the last three calendar years. ARR growth of ~132% Y-o-Y in 1HFY22 is partially due to investment in sales and marketing which led to the expansion of current customer contracts and new customer wins.
• BTH continued to reflect the growth in the underlying SaaS (software as a service) business metrics of Lifetime Value (LTV) to ~$741 million, up by ~98% on pcp and depicting continuous growth from ~$137 million in 1HFY19.

Growth Trend in Operating Revenue & ARR from 1HFY19-1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces changing technological landscape, industry competition, achieving synergistic gains from the acquisition of Brainshark acquisition. 

Guidance for FY22:

• BTH will conduct an Investor Product and Technology event on 10 March 2022 at 11.00 AM for its shareholders and investors. The CEO, David Keane, will present and share insights into products, customer use cases, and overall technology direction.
• BTH is progressing well to achieve/ surpass ~$119 million in ARR and ~$109 million in revenue in FY22. BTH focuses to maximise pricing, enhancing retention, and developing a sustainable subscription-based model with its customers.

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 BTH gave a negative return of ~34.67% in the past three months and a negative return of ~52.55% in the past six months. The stock is currently trading near its 52-weeks’ low level of $0.615. 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 trend of negative cashflows, increased net losses, and shifts in technology. For this purpose of valuation, a few peers like Iress Ltd (ASX: IRE), Nitro Software Ltd (ASX: NTO), Nearmap Ltd (ASX: NEA), and others have been considered. Considering the current trading levels, a positive adjusted EBITDA, growth in SaaS metrics, accrued benefits of operating scale and cross selling with the acquisition of Brainshark, and indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.630, as of 8 March 2022, 10:35 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

BTH Daily Technical Chart, Data Source: REFINITIV

Dropsuite Limited

DSE Details

Improved Financial Metrics of FY21 (Ended 31 December 2021): Dropsuite Limited (ASX: DSE) offers a cloud software platform to companies to recover and protect their business data. Its product portfolio suite consists of email archiving, Google workspace backup, Office 365 backup, website backup, etc.

• The sales revenue increased to ~$11.69 million in FY21 versus ~$7.03 million in FY20, up by ~66% Y-o-Y on the back of a growing reseller partner network and a rise in structural demand in the global data backup and recovery market.
• The company achieved EBITDA breakeven at ~$0.003 million in FY21 compared to a loss of ~$1.66 million in FY20 due to cost control focus and business leverage.
• DSE generated positive net operating cashflows of ~$0.26 million in FY21 versus net operating cash outflows of ~$1.79 million in FY20.

Financial Highlights of FY21; (Analysis by Kalkine Group)

Key Risks: The company needs to keep cyber security and data privacy systems safe. It continues to operate in a technological dynamic landscape which can disrupt and necessitate significant investment in infrastructure and systems. 

Plans to Reinvest:

• The company is experiencing robust market tailwinds within the data security and regulation market. DSE is establishing itself to drive ARR growth fuelled by the growth of partner network and a robust sales pipeline.
• It plans to keep reinvesting in the business (product development, sales, explore acquisitions), drive product innovation, and sustain profitability, and operating cash inflows.

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 ~20.93% in the past three months and a negative return of ~14.99% in the past six months. The stock is currently trading below 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 continuing trend of negative net margin, negative ROE, and cyber security risks. For this purpose of valuation, few peers like Iress Ltd (ASX: IRE), Computershare Limited (ASX: CPU), Xero Ltd (ASX: XRO), and others have been considered. Considering the current trading levels, a turnaround in net operating cashflows, growth in ARR, structural growth in the cyber security, cloud, & regulation market, and indicative upside in valuation, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.170, as of 8 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DSE 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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