Stocks’ Details

Mainstream Group Holdings Limited

Strong Organic Growth and Increase in FUA: Mainstream Group Holdings Limited (ASX: MAI) provides global outsourced fund administration and custody services to the wealth management sector. As on 12 March 2020, the market capitalisation of the company stood at ~$58.01 million. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported growth of 7% in revenue on YoY basis, which stood at $26.7 million. This was mainly driven by new client wins, existing client fund launches and custody income. The strong financial results of the company were backed by strong organic growth in Funds Under Administration, which went up by 27% to $187 billion. 


Growth in Funds under Administration (Source: Company Reports)

Future Expectations: The company has provided guidance for FY20 wherein it expects full year revenue to be around $55 million and EBITDA of approximately $9 million. MAI will make capex investment in digital service delivery, the benefits of which are expected to be felt in FY21 onwards via increased client demand. The company is also planning to reward shareholders with dividends and anticipate partial franking levels as international profit continues to grow.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation


Price to Earnings Multiple Based Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of MAI is trading close to its 52-week low of $0.410, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin of the company witnessed an increase on YoY basis and stood at 10%, up from 9.6% in 1H19. In the same time span, current ratio of the company stood at 2.22x, higher than the industry median of 1.42x. Considering the trading levels, improvement in EBITDA margin and decent outlook, we have valued the stock using price to earnings based relative valuation approach and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.430, down by 2.273­% on 12 March 2020.

LiveTiles Limited

Rapid Growth in ARR: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software in Australia and overseas. As on 12 March 2020, the market capitalisation of the company stood at ~$180.11 million. The company has recently released its interim results, wherein it reported strong recurring revenue growth of 130% to $52.7 million with 1,031 customers. The company is broadening its global base of customers, driven by its portfolio of products, ongoing sales and marketing investments and co-marketing initiatives with Microsoft and other partners.


YoY Growth in ARR (Source: Company Reports)

What to Expect: The company expects to report another year of customer and revenue growth in FY20 owing to its large and growing addressable market. LVT is targeting direct sales & marketing strategy and is focusing on larger enterprises. The company is aiming to grow Annual Recurring Revenue to at least $100 million in the short term and is expecting substantial expansion opportunity with existing customers via cross-selling, bundling and increased penetration. 

Stock Recommendation: As per ASX, the stock of LVT is trading close to its 52-week low of $0.160, which is a good opportunity to invest in the stock. During 1H20, EBITDA margin and net margin of the company witnessed an improvement over the previous half, indicating that the company is managing its costs and may be able to convert its top-line into the bottom-line. On TTM basis, the stock is trading at a price to book multiple of 2.1x, lower than the industry average (Technology) of 4.7x. Considering the current trading levels, improving margins and lower price to book multiple, we recommend a “Speculative Buy” rating at the current market price of $0.175, down by 12.5% on 12 March 2020.

Neometals Ltd

Strong Balance Sheet: Neometals Ltd (ASX: NMT) is engaged in mineral exploration and is focused on advancing its advanced minerals projects and developing its technology business units. As on 12 March 2020, the market capitalisation of the company stood at ~$95.29 million. During 1H20, the company reported a strong balance sheet with a cash balance of $100.7 million and no debt. NMT has a disciplined capital allocation and has issued 463K ordinary shares and 5.36 million preference shares during 1HFY20.

The company has a consistent strategy to reduce risk and accelerate returns. For the quarter ended 31 December 2019, the company used $3.9 million of cash in operating activities.


Net Cash Used in Operating Activities (Source: Company Reports)

Stock Recommendation: As per ASX, the stock of NMT is trading close to its 52-week low of $0.150, proffering a decent opportunity for accumulation. During 1H20, the company reported a stable balance sheet with Assets/Equity ratio of 1.06x, lower than the industry median of 1.7x and Debt/Equity ratio of 0.01x as compared to the industry median of 0.17x. On the TTM basis, the stock is trading at a price to book value multiple of 0.6x, lower than the industry median (Basic Materials) of 1.2x. Considering the current trading levels, stable balance sheet and lower price to book value multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.160, down by 8.571% on 12 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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