Stocks’ Details
 

Empired Ltd

Decent Increase in NPAT: Empired Ltd (ASX: EPD) is an Australian company which provides diversified IT services. As on 24 April 2020, the market capitalization of the company stood at $40.78 million. During 1H20, revenue of the company went down by 5% to $84.4 million. This was mainly due to a decline in Australian revenue as it has exited the Main Roads WA contract, which however, was offset by an increase in New Zealand revenue by 20%. In the same time span, EBITDA was in-line with guidance and stood at $8.4 million, and NPAT went up by 5% on the pcp and stood at $2.0 million. 


1H20 Financial Performance (Source: Company Reports)

FY20 Priorities: The company is prioritizing cash earnings and is focused on reduction in Capex, which is expected to be down by approximately $5 million on YoY basis. The company will continue tight management of its overheads and is targeting growth in recurring revenue. It is also expecting higher H2 EBITDA than H1 and FY20 revenue similar to FY19. EPD will continue to execute its plan to accelerate Australian East Coast Expansion and hence will provide a basis for a strong increase in EPS & Free Cash Flow. 

Stock Recommendation: As per ASX, the stock of EPD is trading close to its 52-week low of $0.210, proffering a decent opportunity for accumulation. During 1H20, gross margin of the company stood at 91.7%, higher than the industry median of 74.8%. In the same time span, EBITDA margin of the company witnessed an improvement over the previous half and stood at 9.3%, up from 5.6% in 2HFY19. On TTM basis, the stock of EPD is trading at an EV/Sales multiple of 0.4x, lower than the industry median (Technology) of 3.4x. Considering the current trading levels, higher margins and decent outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.255 as on 24 April 2020. 
 

Praemium Limited

12th Consecutive Half of Profit Growth: Praemium Limited (ASX: PPS) is one of the leading contributors of scalable managed accounts technology, portfolio administration and CRM & financial advice software for the wealth management industry. As on 24 April 2020, the market capitalization of the company stood at $118.51 million. During March 2020 quarter, the company reported global FUA amounting to $19.4 billion, reflecting a rise of 101% over last year and a decline of 5% against the prior quarter. It added that the Underlying Australia platform FUA growth for the past 12 months stood at 19%, excluding the client transition.During 1H20, revenue of the company witnessed an increase of 12% and stood at $24.2 million. In the same time span, the company witnessed the 12^th consecutive half of profit growth and continued improvement in margins. During 1H20, the company reported record FUA of $20.3 billion, up by 145% on the pcp. 


Record FUA (Source: Company Reports)

What to Expect: PPS has the potential to grow and expandand is working on expanding the sales team in Australia and is recruiting for the UK and in key offshore markets. It will continue to deliver on its strategic initiatives with its next-gen integrated Managed Accounts platform. The company stated that it continued to operate normally during this unprecedented time.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation

Price to Book Value Multiple Based Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuter, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of PPS gave a return of 41.46% in the past one month and is trading close to its 52-weeks’ low level of $0.190. This proffers a decent opportunity for investors to enter the market. During 1H20, EBITDA margin of the company went up to 20.8% from 13.6% in 1H19. Considering the trading levels, improvement in EBITDA margin and decent outlook, we have valued the stock using Price to Book Value based illustrative relative valuation method and have arrived at an indicative target price with an upside of lower double-digit (in percentage terms). For the purpose, we have considered peers such as OneVue Holdings Ltd (ASX: OVH), EQT Holdings Ltd (ASX: EQT) and Hub24 Ltd (ASX: HUB). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $0.285, down by 1.724% on 24 April 2020.

RPMGlobal Holdings Limited

Update on Software Subscription TCV and ARR: RPMGlobal Holdings Limited (ASX: RUL) is a mining technology company providing mining software, mining advisory services, technical consulting and training in the area of mine planning. As on 24 April 2020, the market capitalization of the company stood at $206.1 million. As on 14 April 2020, Total Contracted Value stood at $30 million, and Annual Recurring Revenue (ARR) from software subscriptions was $12.8 million. 

During 1H20, revenue of the company witnessed a decline of 5% and stood at $41.1 million. In the same time span, operating EBITDA of the company was $4.3 million, and NPAT was $0.5 million. As on 31 December 2019, the company had a cash balance of $24.6 million with no debt.


1H20 Financial Performance (Source: Company Reports)

Growth Opportunities: The company expects acceleration in software subscription licensing and is confident about the performance of mobile equipment simulation products.

Stock Recommendation: As per ASX, the stock of RUL gave a return of 5.14% in the past six months and a return of 48.39% in the last one month. The stock is currently inclined towards its 52-week high of $1.250. During 1H20, gross margin of the company was 88.9%, higher than the industry median of 84.1%. In the same time span, EBITDA margin of the company was 10.5% as compared to the industry median of 26.6%. On TTM basis, the stock of RUL is trading at a price to cash flow multiple of 23.8x as compared to the industry average (Software & IT Services) of 8.2x. Considering the returns, current trading levels and higher price to cash flow multiple, we have a watch stance on the stock at the current market price of $0.935, up by 1.63% on 24 April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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