Stocks’ Details
 

Splitit Payments Ltd

Splitit Partners with Visa: Splitit Payments Ltd (ASX: SPT) provides credit card-based instalment solution to businesses and merchants. As on 2 March 2020, the market capitalisation of the company stood at ~$115.27 million. The company has recently announced that it has partnered with Visa in order to speed up the distribution of installment payments for merchants. SPT will also leverage the Visa Developer Platform to participate in the ongoing innovation of the installment payments.

Substantial Growth in Sales Volume and Revenue: In the recently released investor update, the company stated that it is uniquely positioned to capture an underserved market. During FY19, merchant sales volume witnessed an YoY increase of 52% to US$88 million and substantial growth of over 108% in revenue of US$1.65 million. This was driven b­­­y growth in merchant fees. In the same time span, the company had approximately 119,000 active shoppers, reflecting an increase of 55% as compared to FY18 and 720 merchants, a net increase of 97% compared to FY18.


FY19 Operating Results (Source: Company Reports)

Growth Opportunities and Future Expectations: The company has a large addressable market and is planning to open US and UK operations. The adoption of SPT’s installment solution is expected to accelerate in FY20. The company is also exploring additional third-party funding arrangements to facilitate further growth in merchant funded model.

Stock Recommendation: As per ASX, the stock of SPT is trading very close to its 52-weeks’ low level of $0.350, proffering a decent opportunity for accumulation. During 1H19, gross margin of the company stood at 90.4%, higher than the industry median of 74%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. Over the span of 4 years, EBITDA margin witnessed substantial improvement, implying that the company has increased its profitability. On the TTM basis, the stock is trading at a price to book value multiple of 2.2x, lower than the industry average (Technology) of 3.3x. Considering the current trading levels, higher gross margin and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.470, up by 27.027% on 2 March 2020, owing to its recent partnership with Visa.

THC Global Group Limited

Significant Increase in Revenue: THC Global Group Limited (ASX: THC) is a farm to Pharma diversified vertically integrated cannabis company which delivers high-quality medicinal cannabis products to Australian patients through existing access schemes. As on 2 March 2020, the market capitalisation of the company stood at ~$43.64 million. The company has recently released its final report for the year ended 31 December 2019 wherein it reported an increase of 80% in revenue to $4.79 million. This was mainly due to broadened product offering and expansion across the Canadian market. Significant corporate and consulting expenditure and increased costs of good resulted in a loss from ordinary activities of $11.67 million. 


FY19 Financial Performance (Source: Company Reports)

Launch of Australian and International Medicines Supply: The company has stated that it will start the international supply of medicines under the Canndeo brand in Australia and globally and will offer high quality alternative to the current product available for prescription. The company states that the Canndeo products will be available at a lower cost and with high quality and hence, will be well received by prescribers.
Stock Performance: During 1H19, gross margin of the company witnessed an improvement over the past year and stood at 24.3%, up from 11% in 2H18. In the same time span, current ratio of the company stood at 8.71x, higher than the industry median of 1.94x. On the TTM basis, the stock is trading at a price to book multiple of 1.7x, lower than the industry average (Healthcare) of 2.3x. As per ASX, the stock of THC was last traded at $0.310 on 28 February 2020.

Prospa Group Limited

Strong Loan Originations and Growth in Customers: Prospa Group Limited (ASX: PGL) is engaged in online lending to small businesses. As on 2 March 2020, the market capitalisation of the company stood at ~$279.94 million. The company has recently released its half year results for the period ending 31 December 2019 wherein it reported an increase of 37% in loan originations to $306.8 million. In the same time span, revenue of the company went up by 12% on the prior year to $75.6 million from $67.7 million in 1H19. This performance was driven by solid loan originations in Australia and New Zealand. The company has improved its market penetration and has witnessed an increase of 45% in total customers to 26,900 in HY20.


1H20 Operational Performance (Source: Company Reports)

What to Expect: The company is maintaining its market leadership in small business loan product and is improving its market penetration through product and technology development. PGL has provided guidance for FY20 and expects originations in the range of $626 million to $640 million. It will invest in brand, customer acquisition and distribution partner and expects to generate revenue of at least $150 million.

Stock Recommendation: As per ASX, the stock of PGL is trading very close to its 52-weeks’ low level of $1.6, proffering a decent opportunity for accumulation. During 1H20, gross margin witnessed an improvement over the previous half and stood at 81.6%, up from 77.8% in 2H19. In the same time span, net margin went up to 0.7%. On the TTM basis, the stock is trading at an EV/Sales multiple of 2.2x, lower than the industry average (Banking services) of 4.4x. Considering the current trading levels, improvement in gross margin, lower EV/Sales multiple and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.175, down by 1.153% on 2 March 2020.


Comparative Price Chart (Source: Thomson Reuters)

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