Stocks’ Details

Appen Limited

Trading Update: Appen Limited (ASX: APX) is a developer of high-grade human-annotated datasets for AI and machine learning (ML). It has two reporting segments – Relevance and Speech & Image (S&I). The company serves technology, automotive, financial services, healthcare, government, and retail industries. As on 9^th January 2021, the market capitalisation of the company stood at ~$2.90 billion. In a recent trading update, the company notified that it expects its FY20 underlying EBITDA to be in the range of $106 million to $109 million. Further, H2FY20 underlying EBITDA is expected to grow at 30% plus over the first half, applying first-half exchange rates to second-half performance. The company is planning to release its FY20 results on 24 February 2021.

1H20 Result Highlights: The company reported a 25% YoY jump in revenue to $306.2 million for 1H20. APX’s Annual Contract Value (ACV) rose substantially to US$103 million at the close of 1H20. It experienced a 44% rise in statutory EBITDA and 6% in underlying EBITDA during 1H20. Its cash conversion stands at 154% of underlying EBITDA. The Board declared an interim dividend of 4.5 cents per share at 50% franking for 1H20, a 12.5% rise on 1H19. 

1HFY20 Results (Source: Company Reports)

Outlook: The company has a robust existing pipeline of new customers in markets and in new business lines such as shipping, education, healthcare for FY21. Based on analyst forecasts, APX expects advertising to rebound strongly in FY21.

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

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of APX gave a negative return of 33.37% in the past three months and a negative return of 35.56% in the past six months. The stock of APX has a support level of ~$22.25 and a resistance level of ~$27.10. We have valued the stock using an enterprise value to 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 Link Administration Holdings Limited (ASX: LNK), Iress Limited (ASX: IRE), Over The Wire Holdings Ltd (ASX: OTW), etc. Considering the current trading levels, 1H20 results and trading update confirming positive long-run growth outlook of drivers (AI and training data), sales & customers growth in China, guidance for future, and valuation, we give a ‘Hold’ recommendation on the stock at the current market price of $23.46, down by 1.180% on 8^th January 2021.

Sezzle Inc.

Issue of New CDIs & Record Performance in November 2020: Sezzle Inc. (ASX: SZL) provides online payment platform and short-term, interest free payment plans to customers at selected in-store and online stores. It offers buy now pay later services across product categories such as women’s apparel, shoes, cosmetics, wellness, home, and electronic products. As on 9^th January 2020, the market capitalisation of the company stood at ~$1.20 billion. The company recently notified ASX of its issue of 1,584 Chess Depository Interests (new CDIs) ranking equally with the available CDIs on the issue. In another recently released update, SZL reported its highest monthly performance (US$113 million) during November 2020 and Black Friday (BF) / Cyber Monday (CM) Weekend. It delivered a run rate of US$1.36 billion on UMS, surpassing previous guidance and reflecting a rise of 188.5% on YoY basis. BF 2020 sales recorded as the single largest day of UMS and deals from active users so far. The company has recently entered partnerships with GameStop and Wix (online platform). Its platform can be accessed on GameStop’s stores & app and well-integrated with Wix for merchants to access. During November 2020, the company has out-paced its UMS guidance of attaining an annualised run-rate above US$1 billion by the close of FY20.

Q3FY20 Result Highlights: Given the merchant pipeline and product measures, SZL delivered strong results on the following parameters for the September quarter. Its merchant fees posted an increase of 260.6% YoY to US$13 million with an addition of 4,778 merchants during the quarter. It held cash and cash equivalents amounting to US$117k for Q3FY20 vs $55k for Q2FY20.

Q3FY20 Quarterly Results (Source: Company Reports)

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

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of SZL gave a negative return of 18.35% in the past three months and a negative return of 7.19% in the past six months. The stock of SZL has a support level of ~$5.53 and a resistance level of ~$7.13. We have valued the stock using an enterprise value to 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 Zip Co Limited (ASX: Z1P), Afterpay Limited (ASX: APT), Humm Group (ASX: HUM) and others. Considering the current trading levels, decent growth of merchants & fees, and of active consumers, robust YTD FY20 results, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $6.450, up by 4.878% on 8^th January 2021.

Smart Parking Limited

Proposed Settlement of UK VAT Issue: Smart Parking Limited (ASX: SPZ) is a provider of smart parking sensors and integrated smart services in shopping centres, supermarkets, airports, etc. It has broadly 3 divisions – Managed Services, Technology and R&D and offices in the UK, New Zealand, and Australia. As on 9^th January 2020, the market capitalization of the company stood at ~$57.47 million. The company recently announced the retirement of Tiffany Fuller as the Non-Executive Director of the company. In a key announcement on 19^th November 2020, SPZ updated ASX on the proposed framework offered by Her Majesty’s Revenue and Customs (HMRC) on the pending UK VAT matter in relation to the parking breach notice. The proposed settlement is likely to result in a refund of $3.1 million of input VAT overpaid, recognition of a one-time gain of $7.1 million of input VAT in the FY21 results and have a favourable impact on the pre-tax profits in the future based on the agreed VAT calculation method and a few more other positive outcomes in favour of SPZ. A formally documented update on the issue is being worked upon to close the matter soon.

July-October2020 Results & Update: SPZ recorded a positive operating cash flow of $0.6 million and cash on hand balance of $9.3 million at the end of Q1FY21. Post the COVID-19 outbreak, the company picked up new installations from June again, completed 56 new installations in Q1FY21 and has committed for 40 more in Q2FY21 through its re-structured sales force in the UK under managed services business. SPZ is now an accredited ANPR services operator in NZ and has commenced business with the installation of 2 sites. The technology business of SPZ also recorded positive cash flows for Q1FY21 and is running an order book of $3.2 million current & WIP-contracts.

UK Growth Highlights (Source: Company Reports)

Outlook: SPZ has plans for 200 new site installations and expects to realise revenue from the delayed installations in FY21. The company estimates to manage 1,000 sites installations by June 2023 in the UK. For NZ, it aims to grow more pipeline of sites in Q2FY21.

Stock Recommendation: The stock of SPZ gave a positive return of 42.85% in the past three months and a positive return of 50% in the past six months. The stock is trading lower than the average 52-weeks’ price level band, offering a decent opportunity for accumulation. The stock of SPZ has a support level of ~$0.125 and a resistance level of ~$0.179. On a TTM basis, the stock of SPZ has an EV/Sales multiple of 2.6x as compared to the industry median (Transport Infrastructure) of 17.5x. Considering the current trading levels and returns for 3 months and 6 months, decent results of September 2020 quarter, pipeline of ANPR sites in the UK in Q2FY21, start of NZ managed services and growing pipeline, and large addressable market for both Managed Services & Technology business, we give a ‘Speculative Buy’ recommendation on the stock at the current market price of $0.15, down by 6.251% on 8^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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