Stocks’ Details

Xref Limited

Xref Achieves Strong Sales During COVID-19: Xref Limited (ASX: XF1) is an online, automated solution which delivers data-driven candidate insights, and the customer-centric platform and team, offering the flexibility and scalability to hire the best talent. As on 22 July 2020, the market capitalization of the company stood at ~$25.66 million. The company recently issued 2,931,099 options having an exercise price of $0.35, to 50 eligible participants under the Employee Option Plan. Despite the unprecedented situation due to the COVID-19 crisis, the company reported a successful fourth quarter with Q4FY20 sales of $2.7 million and cash receipts of $2.4 million. During the quarter, the company added 60 new clients.

Credit Sales (Source: Company Reports)

Outlook: COVID-19 has accelerated global demand for remote working; as a result, there is an increased desire for improved governance, and the employers are seeking improved ways to perform candidate verification. XF1 is focused on preserving cash and reaching break-even cash flow.

Key Risks: The Group is exposed to market risk through their use of financial instruments and specifically to currency risk, interest rate risk and certain other price risks, which result from both its operating and investing activities.

Stock Recommendation: The company has provided the first automated solution for the candidate referencing process and is capitalizing on its first-mover advantage by focusing and investing for international growth. As per ASX, the stock of XF1 is trading close to its 52-week low of $0.08, proffering a decent opportunity for accumulation. The stock of XF1 gave a return of 60.11% in the past three months. On a Trailing Twelve Months (TTM) basis, the stock is trading at an EV/Sales multiple of 2.5x, lower than the industry median of 1.5x and thus seems undervalued. Considering the current trading levels, attractive returns in the past three months, resilience of the business in the uncertain economic environment and decent long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.140, down by 1.408% on 22 July 2020.

Kyckr Limited

Completes Capital Raising and Share Purchase Plan: Kyckr Limited (ASX: KYK) provides data and technology solutions to accelerate customer acquisition and protect against money laundering, fraud, and tax evasion. As on 22 July 2020, the market capitalization of the company stood at ~$28.54 million. The company has completed the SPP and the settlement of the first tranche of its $8 million capital raising. The funds raised will help the company to build its international sales growth and enterprise sales channel and partnerships.

Quarterly Update: For the third quarter of FY20, the company reported revenue of $623k, up from $601k in December. The company made good progress with the development of client-centric software solutions, and in Perpetual KYC monitoring service. At the end of the quarter, the company used $1.47 million in operating activities and reported a cash balance of $3.1 million.

Cash Used in Operating Activities (Source: Company Reports)

Key Risks: The intellectual property rights of the company are not protected by any registered patents in any jurisdiction. This may allow competitors to develop products functionally like the group’s existing products. The financial contribution of the group will depend on the movement in exchange rates between various currencies, which may fluctuate substantially and may have an adverse impact on the Group’s operating results and financial position.

Stock Recommendation: The company is making progress across all segments and seems to be well positioned for growth in the coming years. It is increasing its product development cadence and is extending target sectors beyond financial services. As per ASX, the stock of KYK is trading close to its 52-week low of $0.035, proffering a decent opportunity for accumulation. On a TTM basis, the stock of KYK is trading at an EV/Sales multiple of 10.8x, lower than the industry average of 37.0x. Considering the attractive trading levels, decent financial performance, and ample liquidity, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.086, up by 3.614% on 22 July 2020.

Vortiv Limited

Profitable and Growing Cloud and Cyber Security Business: Vortiv Limited (ASX: VOR) is a cybersecurity and cloud-based services provider. As on 22 July 2020, the market capitalization of the company stood at ~29.98 million. The company has delivered three successive years of revenue growth and record profit. During FY20, the company delivered record revenue of $11.5 million and profit before tax of $1.4 million. This was mainly due to economies of scale in corporate and other overhead costs and strong utilization of the Cloudten and Decipher Works professional staff. In the same time span, VOR reported decent net cash flow from operating activities of $1.7 million. This increase enables the company to meet all its financial obligations, with the surplus to be used to pursue further investment opportunities.

FY20 Financial Highlights (Source: Company Reports)

Outlook: Despite the economic uncertainty, the company continued to deliver services to clients and secure new business. As a result of its loyal customer base and robust revenue stream, VOR expects to deliver a stronger revenue stream in the coming years. It is focusing on operational and commercial excellence as well as high-value growth with disciplined investments.

Key Risks: The company is exposed to certain risks including credit risks, liquidity risks, interest rate risks and foreign currency risks. An investment in VOR should be considered as speculative and risky due to the start-up nature of the company and its proposed business.

Stock Recommendation: The business seems resilient, despite current economic conditions caused by the COVID-19 pandemic. The company is building a strong client relationship with financial institutions and large government agencies, resulting in growing repeat and recurring revenue business. As per ASX, the stock of VOR gave a return of 34.48% on the YTD basis and a return of 115% in the past three months. On a TTM basis, the stock of KYK is trading at an EV/Sales multiple of 2.5x, lower than the industry median of 4.7x. Considering the attractive returns in the past three months, decent financial performance amid the softer markets, and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.22, up by 2.326% on 22 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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