Stocks’ Details

WiseTech Global Limited

Revised Guidance Due to Acquisition: WiseTech Global Limited (ASX: WTC) is primarily engaged in providing software to the logistics services industry, globally. The company recently announced the issue of 850,000 fully paid ordinary shares at an issue price of $28.72 per share. The shares were issued to WiseTech Global Limited Employee Trust pertaining to the obligation under employee equity plans.

In order to enhance its messaging gateway and ensure greater control over future development, quality and scalability, the company recently acquired Xware, a provider of messaging integration solutions. Other acquisitions by the company included that of Ulukom, Fenix, Multi Consult, Taric, DataFreight, CargoIT and Systems helped to expand its global footprints.

Financial Highlights for 1H19: Total revenue during the period amounted to $156.7 million, showing solid growth of 68% as compared to the prior corresponding period. Net profit attributable to equity holders amounted to $23.1 million, up 48% on pcp. EBITDA for the period amounted to $48.5 million, up 52% on pcp. Earnings per share stood at 7.6 cents per share in 1H19 against 5.3 cps in 1H18.


Key Performance Indicators (Source: Company Reports)

The growth in revenue and EBITDA was primarily driven by geographical expansion, relentless innovation, and increase in product capabilities. The company invested $51.2 million and 47% of the workforce for product development for the purpose of expanding its pipeline and product upgradation.

FY19 Guidance: The company provided FY19 revenue guidance between $322 million - $335 million and revenue growth in the range of 45% - 51%. EBITDA for the year is expected to be in the range of $102 million - $107 million with a growth range of 31% - 37%. Upon acquisition of Containerchain in February 2019, the guidance was revised with expected revenue in the range $326 million - $339 million and growth between 47% and 53%. EBITDA guidance was changed to the range of $100 million - $105 million with growth between 28% - 35%.

Stock Recommendation: The stock of the company generated returns of 24.87% and 61.80% over a period of 3 months and 6 months, respectively. At CMP of $29.470, the stock is trading close to a 52-week high price of $29.590 with higher PE multiple of 177.28x and annual dividend yield of 0.11%. Given the backdrop of mix scenario, we advise the investors to wait for corrections and look for a better entry position. 
 

The Citadel Group Limited

Accelerating SaaS Revenue Underpinned Sustainable Growth: The Citadel Group Limited (ASX: CGL) is engaged in the provision of software and managed services in the technology sector throughout Australia. The company recently confirmed the acquisition of Noventus Pty Ltd, which will further strengthen its position as a leading supplier to the Defence and National Security vertical which is a key strategic focus of Citadel. The company funded the entire transaction through available cash. Noventus is expected to be EPS accretive immediately, pre-synergies.

Key Financial Highlights: In H1FY19, Software/SaaS revenue amounted to $16.8 million, up 39.1% on the prior corresponding period. Group revenue totalled to $49.1 million, up 5.5% on pcp. EBITDA was reported at $13.2 million for the period, up 3.2% on pcp. NPAT from continuing operations amounted to $6.7 million, up 5.4% on pcp. A fully franked interim dividend of 4.8 cps was also declared during the period.


Financial Metrics (Source: Company Reports)

FY19 Guidance: Citadel expects the revenue for FY19 to be in the range of $97 million to $104 million, EBITDA in the range of $22 million - $24 million and a reduction in gross profit margin to approximately 46%. The revised guidance came as a result of customer-controlled project extension to H1FY20, which were earlier expected to commence during H2FY19. Also, the company may not experience the same Q4 increase in FY19 in customer spend as compared to the previous years.

Stock Recommendation: The stock of the company generated returns of -40.34% and -39.39% over a period of 3 months and 6 months, respectively. During H1FY19, the company witnessed a rise in key performing fundamentals including revenue, EBITDA and NPAT with accelerating growth in SaaS revenue. The growth was predominantly marked by a number of SaaS contract wins. The acquisition of Noventus further places it in a strong position to win more contracts over time. The group is continuously progressing towards becoming a global software and services company. The above factors set the stage for the company’s success and will offer growth momentum in the future. Hence, we give a “Buy” recommendation to the stock at a current market price of $4.620 (up 0.435% on 20 June 2019).
 

Data#3 Limited

Strong Growth in Product Revenue and Gross Profit: Data#3 Limited (ASX: DTL) provides mobility solutions, cloud-based solutions, security solutions, data and analytics and IT lifecycle management solutions. As per an announcement made on 12 March 2019, Cat Rock Capital Master Fund LP ceased to be a substantial shareholder of the company.

Key Financial Highlights: During the first half of FY19, the company witnessed a significant improvement as compared to the prior corresponding period. It experienced an increase in large project activity along with a steady pipeline of opportunities. Total product revenue amounted to $532.2 million, reporting an increase of 19.2% on pcp product revenue of $446.6 million. Revenue from services during H1FY19 amounted to $111.4 million, up 11.3% on pcp services revenue of $100 million. Product gross profit reported robust growth at the rate of 14.7% to $82.3 million in H1FY19. Gross profit pertaining to services decreased with a change in the mix from decommissioning the Data#3 Cloud. The company also reported a strong balance sheet position with no material borrowings.


1HFY19 Performance Summary (Source: Company Reports)

Outlook:The company holds large integration projects in the pipeline for the second half of the year. The full year results are expected to be less heavily skewed to the second half than pcp.

Stock Recommendation: The stock of the company yielded returns of 18.77% and 18.44% over a period of 1 month and 3 months, respectively. Currently, the stock is trading close to its 52-week high level of $2.200. For 1HFY19, the company had an EBITDA margin of 1.7% against the industry median of 29.1%. Net margin during the period at 0.9% was lower as compared to the industry median of 23.2%. EV/EBITDA multiple for Data#3 at 12.3x was higher as compared to the industry average of 2.5x. Considering the above-stated factors, we give an “Expensive” rating to the stock at a current market price of $2.170 (up 2.358% on 20 June 2019).
 

Comparative Price Chart (Source: Thomson Reuters)     

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