Stocks’ Details

Afterpay Limited

Strong Underlying Sales in March 2020: Afterpay Limited (ASX: APT) provides technology-driven payments solutions for businesses and consumers.

COVID-19 Update: Amid the challenges put forward by the spread of COVID-19, the company has introduced a first phase of a Response Plan to manage the business including, proper care and safety of employees, customers and merchants, protecting the balance sheet, limiting losses and preserving margins.

Business Update: During the three months ended 31^st March 2020, the company reported a strong performance with YTD underlying sales amounting to $7.3 billion, representing an increase of 105% on the prior corresponding period. March was the third largest month on record in terms of underlying sales after the seasonally higher months of November and December. ANZ continued to be highly profitable and underlying cash flow positive. The company remains in a strong balance sheet and liquidity position, with $541.1 million of cash at the end of the period.

1HFY20 Highlights:During the period the company reported a significant rise in underlying sales, with the global business demonstrating continued momentum with accelerated growth in the US and UK. During the period, the company had a record number of active customers across the globe, which stood at 7.3 million. As a result of higher customer traction, gross loss improved by 17% on the prior corresponding period.


Half Yearly Results (Source: Company Reports)

Valuation Methodology: EV/Sales Based Relative Valuation Method

EV/Sales Based Relative Valuation Method (Source Thomson Reuters)

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

Stock Recommendation: The stock of the company gave positive returns of 42.57% in the last one month and is currently trading above the average of its 52-week low and high level of $8.010 and $41.140, respectively. The company is set to fight the current challenges with a strong capital position and an excellent business model that will help it survive and thrive in the long run. The company is sufficiently liquid and has no requirement for capital raising in the foreseeable future. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in percentage terms). For the purpose, we have taken peers such as Wisetech Global Limited (ASX: WTC), NEXTDC Limited (ASX: NXT), Appen Limited (ASX: APX), etc. Hence, we give a “Hold” recommendation on the stock at the current market price of $27.88, down 1.831% on 15^th April 2020.

Xero Limited

Total Subscribers Surpass the 2 Million Mark: Xero Limited (ASX: XRO) provides online accounting software for small businesses. In a recent update released on 14^th April 2020, the company provided the financial calendar for 2021. The schedule will be as under:


2021 Financial Calendar (Source: Company Reports)

Half Yearly Results: During the half year ended 30^th September 2019, the company witnessed double digit growth in operating revenue, which stood at NZ$338.7 million. Total subscribers grew at a rate of 30% to 2.057 million, being a significant milestone for the business. Net profit after tax stood at NZ$1.3 million, up by NZ$29.9 million on the previous year.


1HFY20 Results (Source: Company Reports)
 
Outlook: The company aims to reinvest the cash generated from business activities to drive long term shareholder value and is focused on expanding its small business platform.
 
Stock Recommendation: The stock of the company gave positive returns of 15.98% in the last one month and is currently inclined towards its 52-week high level of A$90.220. Despite external challengers, the company has seen quick adoption of its services across markets in the past 2-3 years, which helped it add significantly to the number of subscribers on the platform. Considering the mixed scenario due to current trading levels and developments across the platform, we have a watch stance on the stock at the current market price of A$79.530, up 0.607% on 15^th April 2020.

LiveTiles Limited

Strong Product Suite to Drive Growth: LiveTiles Limited (ASX: LVT) is engaged in the development and sales of business software through subscription agreements. The company recently announced that it has entered into a commercial agreement with Linius Technologies Limited for a period of one year, which will involve the development of a LiveTiles powered user interface for Linius’ hyper-personalised video service. Post integration, the companies will pursue sales and marketing initiatives to grow each other’s software distribution businesses.

Q3 Performance: As at 31^st March 2020, the company reported ARR amounting to $55.2 million, with growth of 60% over the past one year and up 4.9 times in 2 years. In late March, the company resorted to material cost reductions taking a reduced cost base into Q4 and beyond. The number of customers also increased from 1,031 as at 31^st December 2019 to 1,068 as at 31^st March 2020, with average ARR per customer growing by ~31% on the pcp.
 

Growth in ARR (Source: Company Reports)

Outlook: The business moves forward with a strong product suite well aligned to customer needs. The company aims to exploit future growth opportunities as the global economy recovers. Meanwhile, it is targeting to reach a run-rate of operating cash flow breakeven during CY2020.

Valuation Methodology: EV/Sales Based Relative Valuation Method

EV/Sales Based Relative Valuation Method (Source Thomson Reuters)

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

Stock Recommendation: The stock of the company corrected by 9.43% in the last three months and is currently inclined towards its 52-week low level of $0.110. The business is well capitalized with cash in hand of over $33 million and has a strong product offering to drive future performance. Amid the recent challenges, the company has switched to a conservative approach and is pursuing growth in recurring revenue along with lower operating expenditure. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in percentage terms). For the purpose, we have taken peers such as rhipe Limited (ASX: RHP), Serko Limited (ASX: SKO), Vista Group International Ltd (ASX: VGL), etc. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.245, up 2.083% on 15^th April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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