Stocks’ Details
 

SportsHero Limited

Long-Term Partnership With PSSI:SportsHero Limited (ASX: SHO) is engaged in the development of the sports gamification platform and has a market capitalization of A$10.83 Mn as on 17^th December 2019. Recently, the Chairman of the company has addressed the shareholders at the 2019 Annual General Meeting and stated that an exclusive three-year partnership has been secured with PSSI, which happens to be the governing body of football in Indonesia. Also, the company has executed an underwriting agreement with Veritas Securities Pty Ltd for exercising 30 Mn options, each exercisable at AU$0.05, with an expiry of August 31, 2019. The following picture provides an idea of cash flows for the Q1FY20:


Net Cash Used in Operating Activities (Source: Company Reports)

Strategy of SHO:The strategy of the company revolves around building a large user base of active sports fans via its platform technologies as well as official associations with sport’s governing bodies, and monetise the strategic asset with the recurring revenue along with the complimentary advertising income.

Stock Recommendation:As per the key personnel of the company, the business is scalable and the technology behind the app has been fully expensed. The company also successfully rolled out Kita Garuda App during the span of 1 August – 30 October 2019 in Indonesia, which has demonstrated the apps appeal as well as growth potential. As per ASX, the stock of SHO is trading close to its 52-week low.

On TTM basis, EV/Sales multiple stood at 16.6x as compared to industry average (Software & IT Services) of 73.6x. Thus, considering the long-term partnership with PSSI, successful launch of Kita Garuda app, current trading levels, and the scalability of the business, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.033 per share.

Medlab Clinical Limited

Completion of Share Placement:Medlab Clinical Limited (ASX: MDC) is engaged in the research and development of nutritional pharmaceutical, and the market capitalisation of the company stood at A$69.99 Mn as on 17^th December 2019. The company recently wrapped up a share placement, which was oversubscribed. MDC has placed 17,857,143 ordinary shares to institutional and sophisticated investors in Australia, and the company would be raising $5.00m before costs from the placement. It was mentioned in the release that the settlement would take place on 20^th December 2019 and the new shares will be allotted on 23^rd December 2019.

On 12^th December 2019, the company, through a release, announced that it has executed an exclusive distribution agreement with Cultech Ltd for the expansion in the UK.  This agreement is majorly focussed on 2 unique products of Medlab such as ORSBiotic™ and NanoCBD™.


Cash Flow Statement Q1 FY20 (Source: Company Reports)

Opportunities in Future:The strategy of the company is delivering short-term results, while making way for various global opportunities in the future. The company is committed to provide significant advancements in pain management with global commercial opportunities.

Stock Recommendation:As at 30^th September 2019, the cash balance of the company stood at $6.942 million. However, the receipt of $2.1 million related to the R&D Tax Incentive Scheme for FY19 has helped the company to improve its cash position in October 2019. Debt to equity of the company stood at 0.06x in FY19 as compared to the industry median of 0.19x. The stock of MDC is trading close to its 52-week low of A$0.300.

From the valuation standpoint, the stock, on TTM basis, is available at an EV/Sales multiple of 7.6x as compared to the industry (Healthcare) median of 8.2x. The stock is available at a price to book multiple of 4.7x as compared to the industry average (Biotechnology & Medical Research) of 6.1x. Thus, in the light of the deleveraged balance sheet as compared to broader industry, execution of exclusive distribution agreement, and improved cash position, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.330 per share, up 1.538% on 17^th December 2019.

3P Learning Limited

Three-Year Strategic Plan:3PLearning Limited (ASX: 3PL) is engaged in developing, sales and marketing of online educational programs to schools as well as parents of school-aged students. The market capitalisation of the company stood at A$120.61 million as on 17^th December 2019. The company recently announced that Perennial Value Management Limited has ceased to be a substantial holder in 3PL on 13^th December 2019. In FY 2019, the company ended a three-year strategic plan to build a foundation for 3P Learning to accelerate the growth in sales as well as realise its ambition to be a leading global SaaS K-12 education brand and business.


Financial Summary (Source: Company Reports)

Opportunities in Core Markets:The company is placed well for addressing the opportunity in its core markets such as North America, ANZ and Europe. For APAC (Asia Pacific), the company is anticipating retention improvements with new sales leadership and customer experience enhancements. Also, with respect to APAC, the company is expecting modest licence revenue and EBITDA growth and it was also added that FY 2021 would witness a full year impact of the improvement.

Valuation Methodology: EV/Sales Multiple Valuation

EV/Sales Valuation Multiple (Source: Thomson Reuters), NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters
 
Stock Recommendation:Net margin of the company stood at 10.8% in FY19 as compared to -33.7% in FY18, which reflects that the company has improved its position to convert its top-line into the bottom-line. Return on equity of the company stood at 27.1% in FY19 in comparison to the industry median of 16.4%, demonstrating better returns to shareholders. Current ratio of the company stood at 1.09x in FY19, reflecting YoY growth of 23.6%. This implies that the company has improved its position to address its short-term obligations. We have valued the stock using one relative valuation method. i.e., EV to Sales multiple approach and arrived at a target price of lower double-digit (in percentage terms). Therefore, taking into the consideration of liquidity position, increased levels of cash balance with no debt, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.865 per share on 17^th December 2019. 

 
Comparative Price Chart (Source: Thomson Reuters)

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