Stocks’ Details
 

SEEK Group

Covid-19 Update: SEEK Group (ASX: SEK) is involved in online matching of hirers and candidates with career opportunities and other related services. On 6 April 2020, the company provided a trading update, wherein it informed that it is experiencing a growing impact of the COVID-19 pandemic. During March 2020, the company experienced an increasing rate of billing declines as the month progressed which coincided with phased government restrictions in response to the Virus. In order to manage its cash flow and balance sheet, the company has also deferred the payment of the H1FY20 interim dividend until 23 July 2020. 

Change in Substantial Holding: Recently, the Pinnacle Investment Management Group reduced its shareholding in the company to 5.18% from 6.49%. Pinnacle Investment Management Group now holds 18,238,965 ordinary shares of the company.

H1FY20 Results Highlights:In the first half of FY20, the company reported revenue growth of 16% (all organic), underpinned by strong revenue growth from Zhaopin & ESVs, and resilient results from AP&A segment. For the period, the company reported a total EBITDA of $247.4 million, up 4% on pcp.


H1FY20 Results (Source: Company Reports)

Key Risks: As evident from the recent results, the company is exposed to the risks and uncertainties related to Covid-19. Further, the company is exposed to the risks associated with Cybersecurity risks, disruption of economic conditions, and stiff competition.

Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative) 

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:Over the last few months, the stock of SEK has performed well on ASX, rising by around 44.71% in the past three months period.  Moving forward, the company expects its long-term focus to unlock large new revenue pools and create significant long-term shareholders’ value. We have valued the stock using an EV/sales based illustrative relative valuation method and have arrived at a target price with high single-upside (in % terms). Considering the aforesaid facts, the company’s decent H1FY20 performance, its recent initiatives to manage its cash flow and balance sheet, and valuation, we give a “Hold” recommendation to the stock at the current market price of $21.69, up by 4.229% on 19 June 2020. 

Gentrack Group Limited

Appointment of Ros Bartlett as Interim CFO:Gentrack Group Limited (ASX: GTK) is involved in the designing, development, and implementation of specialist software solutions for energy utilities, airports and water companies. On 19 June 2020, the company announced the appointment of Ros Bartlett, the current UK Finance Director, as Interim Chief Financial Officer (CFO) of GEK. While performing his duty as interim CFO, Mr. Ros Bartlett will continue to oversee the financial operations of the UK business.

H1FY20 Results Highlights:For H1FY20, the company reported revenue and EBITDA of NZ$50.6 million and NZ$4.3 million, respectively, both impacted by the market conditions including uncertainty with current and new projects in utilities and airports. The company saw a strong operating cash flow during the period driven by working capital improvement, especially in the UK. At the end of H1FY20, the company had net cash of NZ$6.4 million. 


H1FY20 Results (Source: Company Reports)

Key Risks: COVID-19 impact on energy retailers creates a level of uncertainty with the risk of further failures and consolidation.Further, the company is also exposed to credit risk, liquidity risk and market risks which include foreign currency risk, commodity price risk and interest risk.

Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative) 

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of GTK has declined by 60.2% and is inclined towards its 52 weeks low price of $0.770, offering investors an opportunity for accumulation. We have valued the stock using EV/sales based illustrative relative valuation method and have arrived at a target price with high single-upside (in % terms). For the purpose, we have taken peers like Hansen Technologies Ltd (ASX: HSN), rhipe Ltd (ASX: RHP), Over The Wire Holdings Ltd (ASX: OTW), etc. Considering the long-term potential of SaaS products and improved operations and efficiency to Utilities and Airports on mission critical systems, the company seems well-positioned to emerge from the current difficult market conditions and return to consistent profit growth. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.405, down by 1.404% on 19 June 2020. 

Xref Limited

Decent Results in April 2020:Xref Limited (ASX: XF1) is a human resources technology company with a market capitalization of around $31.16 million. Despite the impact of COVID-19, the company saw strong results during April 2020 with sales reaching to $0.86 million, up 31% on April 2019. The company’s cash receipts stood at $0.97 million in April, up 37% on pcp. Over the month, the company added several clients including Babcock Australia & New ZealandAerial Applications in the United States, the Norwegian Directorate for Children, Warrigal Care in Australia, Youth and Family Affair in Norway and XPO Logistics in the UK.


Notice of ceasing to be a substantial holder:On 18 June 2020, the company notified that AustralianSuper Pty Ltd is ceasing to be a substantial holder on the company.

Integration Launch with PageUp:On 30 April 2020, Xref Limited and a leading talent management software platform, PageUp, announced the live launch of their integration which will allow PageUp users to access Xref through their existing dashboard and receive status updates without needing to leave the PageUp platform.

Reduced cash burn rate: The company’s average monthly cash burn rate has reduced by 39% from $1 million per month in Q2 FY20 to $600,000 per month in Q3 FY20.The cash burn rate for March was $530,000 and is expected to drop further during the June quarter.

Key Risks:The company is exposed to market risk through its 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 stock of XF1 has corrected by 53.95% on ASX and is inclined towards its 52-weeks low price, offering an opportunity for accumulation. The stock is trading at an EV/Sales multiple of 3.2x, lower than the industry (industrial) average of 25.5x. The company has performed strongly amid the Covid-19 pandemic, demonstrating the resilience of its business. Considering the aforesaid facts, the company’s decent performance in April 2020, and it’s reduced cash burn rate in March quarter, etc., we give a “Speculative Buy” recommendation on the stock at the current market price of $0.185, up by 5.714% on 19 June 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters) 

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