Stocks’ Details
 

Elmo Software Limited

Acquisition of Vocam: Elmo Software Limited (ASX: ELO) is one of the leading providers of Software-as-a-Service (SaaS), cloud-based human resources and payroll solutions in Australia. As on 16 March 2020, the market capitalization of the company stood at $451.37 million. The company has recently announced the execution of a binding sale agreement to purchase 100% of the shares in Vocam group entities. This acquisition will give the company access to cutting-edge video production and will enable ELO to expand and update video content according to changing customer and industry requirements.

The company has recently released its interim results for the period ending 31 December 2019, wherein it reported an increase of 42.8% in Annualized recurring revenue to $52 million and witnessed a CAGR of 58.1% from 1H18 to 1H20. The company has a large and growing addressable market with increasing customers to 1,478 up from 1,129 in 1H19.


Growth in Annualized Recurring Revenue (Source: Company Reports)

Future Expectations and Guidance: The company has a strong organic growth strategy. ELO has provided guidance for FY20 and expects ARR to be in between $62.5 million to $64.5 million and revenue in the range of $53.3 million to $55.3 million. ELO has an active pipeline of strategic investments and follows a disciplined approach with a strong track record of M&A execution.

Stock Recommendation: As per ASX, the stock of ELO is trading close to its 52-week low of $5.3, proffering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 86.5%, higher than the industry median of 81.7%. In the same time span, current ratio was 1.06x. Considering the trading levels, higher gross margin and decent outlook, we recommend a “Buy” rating on the stock at the current market price of $5.510, down by 8.167% on 16 March 2020. 

Iress Limited

Decent Increase in Revenue and Profit: Iress Limited (ASX: IRE) provides IT solutions to financial market participants and wealth managers. As on 16 March 2020, the market capitalization of the company stood at $1.85 billion. The company has recently released its results for the year ending 31 December 2019, wherein reported an increase of 10% in revenue to $508.9 million and similar growth in segment profit to $152.1 million. This was mainly due to the increasing demand for advice and positive contribution from QuantHouse. The decent financial performance of the company enabled the Board to declare a partially franked dividend of 46 cents per share.

 
FY19 Financial Highlights (Source: Company Reports)

Iress Acquisition of BC Gateways: The company has recently announced that it has acquired BC Gateways. This acquisition will help the company to provide better outcomes with effective distribution of pricing, administration, regulatory and tax data. 

Valuation Methodology:EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Based Approach (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of IRE is trading close to its 52-week low of $9.390, proffering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 91.6%, higher than the industry median of 71.8%. In the same time span, ROE of the company was 15.2% as compared to the industry median of 9.7%. Considering the current trading levels, higher gross margin and ROE and decent financial performance, we have valued the stock using EV/Sales multiple based valuation method and have arrived at an upside of lower double-digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $9.610, down by 8.389% on 16 March 2020. 

Computershare Limited

Half-Year Financial Performance: Computershare Limited (ASX: CPU) provides software specializing in share registry, financial and stock markets. As on 16 March 2020, the market capitalisation of the company stood at $5.71 billion. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported a slight increase of 1.2% in revenue to $1,141.7 million and a growth of 2.2% in EBITDA of $338.7 million. The decent financial performance enabled the Board to declare a partially franked interim dividend of 23 cents per share which is to be paid on 19 March 2020.


1H20 Financial Performance (Source: Company Reports)

Growth Opportunities and Guidance: The company has reiterated its guidance for FY20 owing to a decline in interest rates in the US and Canada. The company expects margin income revenue for FY20 to be around $185 million and a fall in EPS of roughly 15%. CPU is likely to report FY21 margin income revenue to be around $115 million.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation

Price to Cash Flow Based Multiple Approach (Source: Thomson Reuters), *1USD=1.62 AUD

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

Stock Recommendation: As per ASX, the stock of CPU is trading close to its 52-week low of $9.090. During 1H20, EBITDA margin was in-line with the industry median and stood at 28.8%. In the same time span, net margin of the company was 11.1%, higher than the industry median of 7.9%. Considering the current trading levels, higher net margin and future guidance, we have valued the stock using the price to cash flow-based relative valuation method and have arrived at an upside of lower double-digit (in percentage terms). ­Hence, we recommend a “Buy” rating on the stock at the current market price of $9.10, down by 13.744% on 16 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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