5G Networks Limited

 
Brownfield Acquisitions to Drive Operational Improvement:5G Networks Limited (ASX: 5GN) is engaged in the supply of cloud-based solutions, managed services, and network services. The company also operates its own fibre and wireless infrastructure and manages its own cloud computing environment. The company owns data centre after the acquisition of Melbourne Data Centre which was completed on 01 April 2019. Recently, the 5GN announced that it has entered into an agreement to acquire Australian Pacific Data Centres Pty Ltd (APDC) for $3.5 million cash which includes annualized contracted revenue of $1.7 million per annum. Management expects that the business is likely to be benefited with several cost synergies of approximately $500 thousands of annualized savings, starting from H2 FY20. The company announced a dividend reinvestment plan (DRP), which allows eligible shareholders to reinvest full or a portion of their dividends in 5G Networks capital.
 
FY19 Financial Highlights:5GN released FY19 results wherein it posted revenue at $51.172 million as compared to $6.129 million in FY18 and reported a loss of $4.141 million as compared to a loss of $0.325 million in FY18. The company witnessed a growth in EBITDA from $0.237 million in FY18 to $0.320 million in FY19. 5GN reported total assets at $45.779 million and net assets at $16.388 million as on 30 June 2019. During FY19, the company primarily focused on operational synergies implemented and nearing completion. Additionally, the company exited its non-core products, and mobile and consumer. 5GN made several acquisitions, namely, an IT solution company Anittel, a cloud hosting company Hostworks and Melbourne Data Centre. The company added 1000 plus new customers through successful cross and upsell strategies during FY19. The company made a capital raising program and raised $8 million during the fourth quarter.
 

FY19 Financial Highlights (Source: Company Reports)
 
5G Networks declared a fully franked final dividend of AUD 0.0100 (1 cent) per share, for the year ended 30 June 2019, payable on 18 October 2019.
 
Outlook:The Management highlighted that the company will look for new geographical and synergistic acquisitions in FY20 and will look for network expansion. The company will focus on optimizing its operational efficiencies, and sales team will focus on core high margin products. The Management has guided for a revenue estimate of $55 million – $65 million with an EBITDA margin expectation of 8% to 12%. As per the International Data Corporation, Australian managed cloud services market is likely to reach $2.8 billion in 2022.
 
Stock Recommendation:The stock of 5GN is trading at $0.865 with a market capitalization of $53.34 million. The 52-week trading range of the stock stood at $0.375 to $1.715. The stock has delivered returns of -31.15% and +22.63% in the last three-months and six-months, respectively. The stock is quoting at Enterprise Value to Sales multiple of 1.1x on TTM basis as compared to the industry median of 1.9x. The company is focusing on selling its high margin products along with improving its operational synergies. We believe that growing internet traffic and prominence of cloud computing is likely to lead a positive impact on the business of 5G in the coming years. Considering the aforesaid facts, valuation and business prospects, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.865, up 2.976% on 12 September 2019.
 

DigitalX Limited

Macro Slowdown Affected Business Performance in FY19:DigitalX Limited (ASX: DCC) is engaged in advisory services for new token offerings, asset management focused on technology, including blockchain and digital assets, blockchain development and media services. Recently, the company announced a change in director’s interest, where one of its directors named Peter Irwin Rubinstein acquired 2,200,000 number of shares at an average price of $0.027 per share.

FY19 Financial Highlights:DigitalX Limited announced full -year results for FY19 wherein it posted revenue from operations at US$0.926 million as compared to US$8.211 million in the previous year. The company reported a net loss of US$2.477 million as compared to a net profit of US$ 2.44 million in FY18. Net gain on digital assets came in at US$1.639 million as compared to US$1.685 million in FY18. DCC reported total assets at US$13.374 million and net assets at US$12.156 million as on 30 June 2019. The results were impacted by a slow-down in the market and a significant draw down in the value of digital asset prices which has contributed to a significant reduction in the company’s revenue from the previous financial year.


FY19 Financial Highlights (Source: Company Reports)
 
Outlook:As per the Management guidance, the company has commenced a strategic review on the Company strategy, which will encompass all four business lines and the process for acquiring new blockchain and technology opportunities. The Management expects a positive outcome from the future commercializing blockchain technologies and has developed a strong growth strategy to drive business growth in the coming years.
Stock Recommendation:The stock of DCC is trading at $0.028 with a market capitalization of $16.1 million. Currently, the stock is trading at the lower band of its 52-week trading range of $0.025 to $0.110. The stock was down by 30.77% in the last one-month due to subdued financial results for FY19. The stock has delivered a negative return of 49.06% and 43.16% in the last three months and six months, respectively. On the valuation front, the stock is available at EV/Sales multiple of 1.1x on TTM basis as compared to the industry median of 4.8x. Considering the recent price movement along with  the development witnessed in FY19, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.028, up 3.704% on 12 September 2019.
 

SportsHero Limited

Multi-revenue Stream Digital Partnership Agreement with PSSI:SportsHero Limited (ASX: SHO) is engaged in the development of sports gamification platform. Recently, the company announced a change in director’s interest, where one of its directors named Tom Lapping disposed 14,714,286 options on account of ‘Expiry of Options’.

FY19 Financial Highlights:SportsHero Limited released its full-year results for FY19, wherein it posted a revenue of US$423,242 as compared to a revenue of US$16,841 in the previous year. The company witnessed a loss of US$2,265,893 as compared to a loss of $4,335,566 in FY18. The company reported total assets at US$260,417 and net liabilities of US$986,081 as on 30 June 2019. On 25 March 2019, SportsHero Limited executed an exclusive multi-revenue stream digital partnership agreement with the Football Association of Indonesia (PSSI). Throughout the year, the Company undertook and delivered significant technical achievements, culminating in the development of the white label mobile application “Kita Garuda” for PSSI. As per the partnership agreement, the net revenue from direct advertising will be shared on 70:30 in favour of the party that introduces the advertiser.  During the March quarter, SportsHero Limited executed binding agreements with Cross Bet Holdings Pty Ltd (CBH) for the purpose of enabling the granting of a Sports Bookmaker Licence to facilitate the Australian launch of a SportsHero pay-to-play sports prediction platform.


FY19 Results Snapshot (Source: Company Reports)

Stock Recommendation: The stock of SHO is quoting at $0.063 and has a market capitalization of ~$18.33 million. The stock is trading at the lower band of its 52-week trading range of $0.060 to $0.160. The stock has delivered returns of -5.97% and -17.11% in the last three-months and six-months, respectively. The Company has a partnership with one of the world's popular, Spain's LaLiga, as the exclusive Indonesian partner in the sports prediction category.Additionally, having developed a white label digital solution, the Company is now able to offer that digital solution across multiple sports to sporting groups and other partners globally.Considering the aforesaid facts, recent price movement and FY19 results, we recommend a ‘Speculative Buy’ on the stock at the current market price of $0.063, with no change as on 12 September 2019.

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