The Citadel Group Limited

Citadel Stands Strong Despite Dr. Jakeman’s Resignation:Digital service provider, The Citadel Group Limited (ASX: CGL) recently announced its H1FY19 results. It reported increase in its total revenue by 5.5% PCP to $49.1 Mn on December 31, 2018, majorly driven by SAAS revenue which increased by 39.1% PCP to $16.8 Mn. Investments in its SAAS platform development helped it provide continuous annuity revenue streams and will further drive for long-term sustainable growth. Its SAAS solutions, the Citadel-IX which is a virtual responder application for citizen safety and suite of e-health solutions has helped it to achieve in excess of 265,000 users across software and managed solutions across its key verticals of Government, National Security and Defence, Health and Education. Its EBITDA increased by 3.2% PCP to $13.2 Mn whereas its Net profit after tax from continuing operations attributable to members increased by 10.3% PCP to $5.1 Mn. Interim dividend (fully franked) has been in-line to the previous corresponding period at 4.8 cps with payment date on March 29, 2019 and record date on February 25, 2019.

In its previous announcement, Dr. Miles Jakeman has resigned as a Director of the company with immediate effect.


Financial & Product Metrics (Source: Company Reports)

The company expects to leverage its investments to develop enhanced SAAS solution “Citadel 2.0”. It aims to utilize its reseller and channel partners to scale its SAAS sales across Australia and worldwide. It has a weighted pipeline of worth $132 Mn, which will allow it to grow through its shorter sales cycles to deliver a large number of customers.

Stock Recommendation: CGL’s share last generated positive YTD return of 7.80%. Its absolute return for 1 year has been 16.39% as at March 13, 2019). Its gross margin for H1FY19 stood at 47.1% better than the industry median of 41.2%. With strong financial health and robust pipeline, it expects to deliver better earnings in the forthcoming results. On the valuation front, CGL’s PE multiple is at 19.53x lower than industry average of 7.5x indicating stock’s undervalued position at the current juncture. Hence, we recommend a “Buy” rating on the stock at its current market price of $7.69 (down 0.646% on March 14, 2019).
 

Redbubble Limited

Decent Performance in 1HFY19:Redbubble Limited (ASX: RBL) recently released its H1FY19 report where its group marketplace revenue increased by 39.7% PCP to $142.9 Mn on December 31, 2018. This is due to increase in unique customers (excluding TeePublic) by 23.7% PCP to 3.3 Mn, 37.1% increase in repeat customers and increase in selling artists by 41.2% to 279,000. These were supported by the fact that website visits increased by 25.1% PCP to 179 Mn on December 31, 2019. Its gross profit increased by 47.4% PCP to $52.1 Mn. However, the group reported a decrease in its net loss after tax by 5.8% PCP to $2.2 Mn. This was due to an increase in artists margin, fulfillers expenses, employee and contractor costs, marketing expenses, etc. It delivered free cash flow of $25.8 Mn for H1FY19 which was majorly driven by reclassification in the acquisition balance sheet of TeePublic.

In another update, Mr. Chris Nunn, CFO Redbubble will be retiring on 30 June 2019 and will be succeeded by Ms. Emma Clark who is the current CFO of Australia and New Zealand Banking Group (ANZ)’s Technology division.

IOOF Holdings Limited has increased its interest in the company from 5.041% voting rights to 6.048% voting.rights.


Global Revenue Metrics (Source: Company Reports)

The company aims to enhance the differentiated user experience and accelerate the marketplace flywheel. It expects to generate a positive Operating EBITDA and cash flow result for FY2019.
Stock Recommendation:RBL’s share generated positive YTD return of 9.89%. Its top line has performed outstandingly well whereas its bottom line has shown improvement by 5.6% as compared to the previous corresponding period. Hence, we recommend a “Buy” rating on the stock at current market price of $1.01 (up 1% on March 14, 2019).
 

Bubs Australia Limited

Synergistic Partnershipwith Organic Players – Support Overall Growth: Consumer goods stock, Bubs Australia Limited (ASX: BUB) has recently announced its partnership with Beingmate Baby & Child co., China which is a leading infant nutritionals company. This will help Bubs to accelerate its China operations via Beingmate’s existing distribution network covering 30K mother and baby stores by 2,200 employees. Besides this, Bubs has clarified of its Supply agreement with Tatura Milk Industries Limited (Tatura) to convert fresh goat milk directly from farm gate into Infant Formula nutritional base in one step for an initial term of 3 years.

In its half yearly result report, total Revenue increased by 502% PCP to $19,567,560, where domestic growth stood at 402% and sales in the Chinese market stood at 901%.Its loss after tax benefit increased by 127% PCP to $8,826,965 in 1HFY19.


Financial Metrics (Source: Company Reports)

As per the company’s expectation, the partnership with Tatura Milk Industries (Parent company Bega Cheese Limited) will help it to reduce unit production costs and shorten the cash cycles, and therefore boost gross margin in H2FY19.

Stock Recommendation:Bubs’ share generated positive YTD return of 59.34%. The top line of the company showed tremendous growth. As it has entered into partnerships, its operating cost is expected to decline in the forthcoming year which will boost its earnings. As per the technical analysis, the stock is trading above 50 DMA (daily moving average) and 200 DMA which might witness uptrend for short to medium term. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.730 (up 0.69% on March 14, 2019).

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