ELMO Software Limited

ELO Details

ARR Growth & Positive EBITDA Results in Q3FY22 (ended 31 March 2022): ELMO Software Limited (ASX: ELO) provides cloud-based solutions to mid-market and small business market for management of processes, people, pay and expenses.

• The mid-market segment's ARR (annual recurring revenue) increased by ~31% Y-o-Y to ~$89.9 million in Q3FY22, reflecting robust growth momentum driven by the onboarding of new customers and cross-selling opportunities to current customers.
• ELO reported ~$28.3 million in cash receipts for Q3FY22, with the year-to-date 2022 collections totalling ~$84.3 million in cash receipts (up ~53% Y-o-Y).
• The company introduced Hybrid Work and Wellbeing, two new modules, in Q3FY22.

Growth in Key Metrics; (Analysis by Kalkine Group)

Key Risks: The company faces technological risks, profitability risks, operating cashflow breakeven, peer competition, and retention of top talent.

Outlook:

• The company plans to maintain a capital management focus and operating cash spending stable in Q4FY22. ELO witnesses’ strong momentum flowing in Q4FY22 and expect ARR growth to remain at elevated levels. It will continue leveraging the cost base as it plans to cross the operating cashflow breakeven point in 2HFY23.
• ARR guidance is maintained between ~$107.0 - ~$113.0 million, and revenue is estimated between ~$91.0 - ~$96.0 million (up by ~32% - ~39% Y-o-Y) 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 negative return of ~19.17% in the past three months and a negative return of ~39.41% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.900 - $5.700. 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 continuing negative net margin, negative ROE, and an uptick in the debt-to-equity ratio. For this purpose of valuation, a few peers like Hansen Technologies Ltd (ASX: HSN), Praemium Ltd (ASX: PPS), Nearmap Ltd (ASX: NEA) have been considered. Considering the current trading levels, growth in key financial metrics and both operating segments, decent outlook comprising ARR and revenue growth on FY21, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $3.120, down by ~0.952%, as of 24 May 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.

ELO Daily Technical Chart, Data Source: REFINITIV 

Dotz Nano Limited

DTZ Details

Latest Updates: Dotz Nano Limited (ASX: DTZ) is a developer, manufacturer, and marketer of advanced carbon-based materials for tracing, tagging, verification, and diagnostics solutions. On 5 May 2022, DTZ issued ~750,000 shares at ~$0.048 per share upon utilising ~750,000 unlisted options (ASX: DTZAAC/ DTZOPT23) and without disclosure to investors under the Corporations Act.

Q1FY22 (ended 31 March 2022) Updates:

• DTZ aims the deployment of its materials technology in the competitively advantageous areas of the diagnostics and authentication markets. It has distribution contracts with five partners fostering acquisition and servicing of customers in Malaysia, Paraguay, UAE, Egypt, Sudan, and Thailand.  
• In Q1FY22, DTZ reported a lack of order fulfilment for two of its purchase orders for its virus detection test kits (~US$ 2.1 million order from Hygiene Links and ~US$ 200K for El Alamo in Paraguay).
• DTZ reports ~US$9,000 cash receipts and ~US$1.34 million net operating cash outflows in Q1FY22, with ~US$2.78 million cash balance as of 31 March 2022.

Comparative Key Metrics; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological shifts, COVID-19 disruptions, growth in partner networks, and regulatory barriers. 

Outlook:

• DTZ plans to conduct the Annual General Meeting on 31 May 2022.
• DTZ has undertaken several tests with prospective authentication and diagnostics customers and is in talks to obtain new sales and distributors for the authentication and diagnostic solutions.
• The management believes and notifies a diverse and broad application base for graphene quantum markers (product) across industries. It foresees a considerable opportunity in track & trace and traceability and anti-counterfeiting markets.

Stock Recommendation: The stock of DTZ gave a negative return of ~12.16% in the past three months and a negative return of ~15.58% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.270 - $0.470. On a TTM basis, the stock of DTZ is trading at a price to book value multiple of 21.0x versus the industry (Technology) average of 36.7x and thus seems undervalued. Considering the current trading levels, market opportunity potential for graphene quantum markers, ongoing talks for securing contracts, recent collaboration contract with Theracell Labs Ltd, distribution partners currently, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.325, up by ~4.838%, as of 24 May 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.

DTZ Daily Technical Chart, Data Source: REFINITIV  

MSL Solutions Limited

MSL Details

Latest Updates: MSL Solutions Limited (ASX: MSL) provides software-as-a-service (SaaS) solutions to the leisure, sports, and hospitality sectors and operates segments, namely the UK, Asia Pacific, and Denmark.

1HFY22 (ended 31 December 2022) Results:

• MSL witnessed organic and inorganic growth on account of the acquisition and inclusion of OrderMates’ contribution in 1HFY22. Gross margin increased from ~$8.85 million in 1HFY21 to ~$12.07 million in 1HFY22, up by ~$3.21 million.
• EBITDA (excluding government subsidies) rose from ~$719K million in 1HFY21 to ~$2.21 million in 1HFY22, driven by a ~96% Y-o-Y organic rise in new sales.

Revenue Split from Geographies; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological developments, profitability risk, peer competition, and COVID-19 uncertainty.  

Outlook:

• MSL plans to expand its digital product suite with its new digital guest engagement technologyand add more 3rd party integrations to its core POS (Point of Sale). It expects growth in the digital revenue stream in 2HFY22.
• MSL focuses on expanding partnerships, enhancing profitability driven by robust recurring revenue and deeper market penetration.
• Advanced integration with OrderMate is also expected to deliver operational and technology synergies boosting MSL’s M&A strategy.

Stock Recommendation: The stock of MSL gave a negative return of ~24.99% in the past three months and a negative return of 41.07% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.130 - $0.285. On a TTM basis, the stock of MSL is trading at an EV/Sales value multiple of 2.1x, lower than the industry (Software & IT Services) median of 3.9x, thus seems undervalued. Considering the current trading levels, organic revenue growth, long-term contracts with leading golf federations, valuation on a TTM basis, expansion plans in the US & Europe, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.165, as of 24 May 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.

MSL 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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