Stocks’ Details
 

Altium Limited

Business Update: Altium Limited (ASX: ALU) is an electronic design software company involved in the development and sales of computer software for the design of electronic products. On 22 June 2020, the company informed that its strategy to support its customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth. However, the pricing strategy adopted in response to COVID-19 for Altium Designer is impacting revenue potential for the full year, as a result of which, FY20 revenue growth is likely to land marginally behind the latest analyst consensus for the full year. The company will provide the final market update of its headline sales and revenue results for fiscal 2020 in early July.

H1FY20 Results: In the first half of FY20, the company saw strong revenue growth of 19% and profit before tax growth of 23%. Over the period, the company’s core business segments delivered double-digit revenue growth. The company witnessed record growth in new Altium Designer seats of 19% and growth in subscriber base of 16% to 46,693 subscribers. 


H1FY20 Results (Source: Company Reports)

Withdrawal of Guidance: Due to the rapidly evolving COVID-19 environment, the company has withdrawn its formal FY20 earnings guidance. The company is firmly committed to its long-established aspirational market leadership target of US$200 million for FY20. 

Key Risks: The company operates in several countries around the world and is subject to multiple regulatory and compliance regimes. Further, there is an inherent risk related to the potential of cyber-attack on proprietary information and customer data.

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 three months, the company’s stock has increased by 35.93% on ASX, and is trading slightly higher than the average of its 52 weeks trading range of $23.11 - $42.76. As per the update provided on 12 May 2020, the company is currently profitable and financially strong with a strong balance sheet and a cash balance of more than US$77 million. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Technology One Ltd (ASX: TNE), WiseTech Global Ltd (ASX: WTC), and NEXTDC Ltd (ASX: NXT). Considering the company’s resilient performance amid Covid-19, its decent H1FY20 performance, current financial position and current trading levels, we give a “Hold” recommendation on the stock at the market price of $33.6, down by 7.591% on 22 June 2020. 

Tyro Payments Limited

Trading update: Tyro Payments Limited (ASX: TYR) is a technology-focused and value-driven company that provides simple, flexible, and reliable payment solutions as a merchant acquirer, along with complimentary business banking products. On 22 June 2020, the company provided a trading update wherein it informed that in FY2020 (till May 2020), the company has reported a transaction value of $18.475 billion, up 16% on pcp. For the months of June 2020 (till 19 June 2020), the company reported a total transaction value of $1.016 billion, up 7% on the previous corresponding period (pcp).

H1FY20 Results Highlights: During the first half of FY20 or H1FY20, the company witnessed record revenues of $117.3 million and a positive EBITDA result of $1.5 million. Over the period, the company saw strong momentum in the business, driving an all-time high $11.1 billion in transaction volumes with more than 32,000 merchants trusting Tyro with their payment needs.


H1FY20 Results (Source: Company Reports)

Key Risks: The company is exposed to credit risk from its operating activities and from its lending and investing activities, including deposits with banks and financial institutions, foreign exchange transactions, and financial investments in floating-rate notes. The company is also subject to the risk of credit losses from its unsecured loan products.

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: In the last three months, the stock of TYR has increased by 295.88% on ASX. As per the update provided on 30 March 2020, the company remains in a strong financial position, with cash, cash equivalents and financial investments available at the end of February 2020 amounting to $154 million. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in % terms). For the purpose, we have taken peers like EML Payments Ltd (ASX: EML), Afterpay Ltd (ASX: APT), and Bravura Solutions Ltd (ASX: BVS). Considering the company’s decent performance in H1FY20, its robust financial position, and expected upside in the valuation, we give a “Hold” recommendation on the stock at the market price of $3.55, down by 7.552% on 22 June 2020.  
 

Codan Limited

Trading Update: Codan Limited (ASX: CDA) is a technology company that designs, manufactures, and markets a diversified range of high value-added electronics products for sophisticated consumer markets, governments, and businesses. On 17 June 2020, the company provided a trading update wherein it informed that its sales were down 20% in the month of April against its record first-half run rates. The company also informed that its cash generation has been excellent, and the balance sheet has further strengthened to circa $85 million net cash.

H1FY20 Results: In the first half of FY20, the company reported NPAT of $30.4 million, up 37% on pcp, mainly driven by the strong growth in communications sales. During the period, the metal detection sales exceeded $100 million for the first time, due to continuing strong demand for gold detectors. For the half-year period, the company announced an interim dividend of 7.5 cents per share, fully franked.


H1FY20 Results (Source: Company reports)

Key Risks: As the company uses financial instruments, it is exposed to several risks including credit risk, liquidity risk, market risk and operational risk. The company minimizes concentration of credit risk by undertaking transactions with a large number of customers in various countries.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation (Illustrative) 

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Despite operating in very uncertain times, the company expects to deliver a record profit in FY20. In the last three months, the stock of CDA has increased by 56.10% on ASX. We have valued the stock using Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Bravura Solutions Ltd (ASX: BVS), Hansen Technologies Ltd (ASX: HSN), and Appen Ltd (ASX: APN).  Considering the company’s strengthened balance sheet, decent H1FY20 results, and expected upside in the valuation, we give a “Hold” recommendation on the stock at the market price of $7.560, up by 3.704% on 22 June 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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