Stocks’ Details

Bigtincan Holdings Limited

CAGR of 50% in ARR: Bigtincan Holdings Limited (ASX: BTH) is a provider of enterprise mobility software. The market capitalisation of the company stood at $348.32 Mn as on 28^th July 2020.  The company managed to close FY20 with a strong June 2020 quarter, wherein it reported Annualised Recurring Revenue (ARR) of $35.8 million, reflecting YoY growth of 53%. Over the past 5 financial years (2016-2020), the company has delivered a CAGR of 50% in ARR. This reflects the ongoing success of its organic growth engine, together with the benefits of strategic M&A activities. Customer cash receipts for the quarter rose by 89% to $10.4 million, from $5.5 million in the June 2019 quarter.

ARR Growth (Source: Company Reports)

Signing of Contract: BTH has inked a contract with Red Bull GmbH for deployment of Bigtincan software with a total contract value of $1.8 million over 30 months, with an option to extend for a further 60 months. The software would be used by Red Bull employees and distributors globally to help empower these users for remote onboarding and training, as well as to help promote and sell Red Bull products in customer-facing scenarios on iOS devices and phones/tablets.

Expected Revenue Growth: The company is on track to achieve organic revenue growth in the range of 30%-40% during FY20. BTH also expects retention to remain stable.

Key Risks: The key risks to the business include competition from new entrants to the industry, failure to retain existing customers and attract new customers, reliance on a single product and disruption or failure of technology systems.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has finished an oversubscribed institutional placement and associated Share Purchase Plan to raise a total of $42.5m before costs to take advantage of market opportunities as they arise. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as ELMO Software Ltd (ASX: ELO), Nearmap Ltd (ASX: NEA), iSignthis Ltd (ASX: ISX), etc. Hence, considering the CAGR of 50% in ARR, signing of a contract with Red Bull GmbH and recent capital raising, we give a “Hold” recommendation on the stock at the current market price of $0.905 per share, down by 2.162% on 28^th July 2020.

LiveTiles Limited

Improvement in Operating Cash Flow: LiveTiles Limited (ASX: LVT) is involved in the development and sale of business software in Australia and overseas. The market capitalisation of the company stood at ~$243.6 Mn as on 28^th July 2020. The company is likely to release its Q4 FY20 results on 29^th July 2020. Operating cash flows during Q4 FY20 witnessed growth in cash receipts from customers and reduction in cash operating expenditure as a result of restructuring undertaken during the quarter. The following picture gives an overview of lifetime value (LTV) of the recurring revenue pool:

LTV (Source: Company Reports)

Outlook: The company stated that COVID-19 has created opportunities and challenges in the short-term. LVT continues to develop its unique product suite to align it with customer needs. The total potential addressable market size, after looking at the Microsoft Office 365 customer base, has been estimated at over $14 billion.

Key Risks: Notwithstanding the opportunities put forward by COVID-19, the global macroeconomic outlook is highly uncertain and may pose some short-term challenges in terms of sales. In addition, the company is exposed to a variety of financial risks such as credit risk, liquidity risk, interest rate risk and foreign currency risk.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: On 29^th April 2020, the company received cash of $5.6 million in relation to research & development tax refunds from the Australian Tax Office. The company increased its cash balance by 14% to $38.5 million as of 1^st May 2020. This increase was due to reduced underlying operating cash burn and receipt of government grants. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit growth (in percentage terms). Thus, considering the increased cash balance, improvement in operating cash flows and risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.270 per share with no change on 28^th July 2020.

Adacel Technologies Limited

A Look at Recent Market Update: Adacel Technologies Limited (ASX: ADA) is engaged in the development of advanced simulation and control systems for aviation and defence. The market capitalisation of the company stood at $40.89 Mn as on 28^th July 2020. In a recent market update, the company stated that it undertook and expedited a number of critical infrastructure installations, including the partial completion of MaxSim upgrades for existing customers in the US and Australia despite global travel restrictions. ADA was also able to expedite two Aurora air traffic management projects in Fiji and Portugal while continuing to work remotely with the customer. During 1H FY20, the company reported profit before tax amounting to $2.6 million.

Key Financials (Source: Company Reports)

Guidance: For FY20, the company expects to report profit before tax of around $4.8 million, on account of completion of several MaxSim upgrades, ongoing operating efficiencies and improved cash management, ADA anticipates a cash balance of $5 million at the end of FY20.

Key Risks: The key risks to the company’s business include lengthy tender and decision-making processes from the aviation authorities and the occasional funding constraints faced by these organisations. These factors may impact its ability to forecast the timing and quantum of new and on-going business activity accurately.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 87.2% and 15.0% in 1H FY20, reflecting YoY growth of 4.3% and 4.2%, respectively. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit growth (in percentage terms). For the purpose, we have taken peers such as Redflex Holdings Ltd (ASX: RDF), Gentrack Group Ltd (ASX: GTK), etc. Therefore, considering the completion of numerous MaxSim upgrades, guidance for FY20, improvement in key margins and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.530 per share, down by 0.935% on 28^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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