Stocks’ Details

ELMO Software Limited

Record Annual Cash Receipts: ELMO Software Limited (ASX: ELO) is one of Australia and New Zealand’s leading providers of software-as-a-service (SaaS), cloud-based human resources and payroll solutions. As on 16 July 2020, the market capitalization of the company stood at ~$535.37 million. During the fourth quarter of FY20, the company continued its growth trajectory despite the challenges associated with COVID-19. Cash receipts for FY20 reached a record of $57.5 million, up by 27.4% on Q4FY19 and cash collection stood at $16.8 million in Q4FY20, reflecting an increase of 26.2% on the previous quarter. During the quarter, the company also announced the launch of ELMO Connect, a new communications module allowing businesses to instant message and initiate Zoom conference calls from within ELMO’s cloud-based platform.

Customer Receipts- Trailing 12 Months (Source: Company Reports)

Guidance: The company has updated its FY20 guidance and expects ARR to be between $55 million and $57.0 million, reflecting expected growth between 20% and 24% as compared to FY19. It also anticipates revenue between $50 million and $52 million.

Key Risks: The group is exposed to credit risk, liquidity risk, and market risk arising from its financial assets and liabilities. For FY20, the company expects to report an EBITDA loss between $2.5 million and $4.5 million.

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: ELMO seems well-capitalised with no debt and a cash balance of $139.9 million as at 30^th June 2020 to continue investing in organic growth and execute strategic acquisitions. As per ASX, the stock of ELO gave a return of 5.93% in the past three months and is inclined towards its 52-week high of $8.39. We have valued the stock using the EV/Sales multiple based illustrative relative valuation approach and have arrived at a target upside of mid-single-digit (in percentage terms). For the said purposes, we have considered Integrated Research Ltd (ASX: IRI), EML Payments Ltd (ASX: EML) and Nearmap Ltd (ASX: NEA) as peers. Considering the current trading levels, returns in the past three months, upgraded guidance for FY20 and improvement in operational performance, we recommend a ‘Hold’ rating on the stock at the current market price of $6.64, up by 6.24% on 16 July 2020.

Audinate Group Limited

Trading Update for FY20: Audinate Group Limited (ASX: AD8) is a provider of professional audio networking technologies globally. As on 16 July 2020, the market capitalization of the company stood at ~$365.52 million. The company has recently released a trading update for the 12 months to 30 June 2020, wherein it reported unaudited revenue of ~$30.3 million, retaining a gross margin of approximately 77%. It also reported unaudited EBITDA of ~$2.0 million. At the end of the period, the company had $29.3 million cash on hand.

Growth Across Financial and Operational Metrics: During 1H20, the company witnessed revenue growth of 14.1% and gross margin went up by 20%. In the same time span, the company witnessed Original Equipment Manufacturers (OEM) product growth of 35.4% to 2,371.

Growth in Gross Margin (Source: Company Reports)

Key Risks: The performance of the company is impacted by manufacturing customers’ exposure to various sectors directly affected by government restrictions due to the outbreak of COVID-19. Government decisions have the potential to delay projects and reduce the near-term demand for Audinate’s technology.

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: While the company faced headwinds associated with COVID-19 and recovery timing is uncertain, it is confident in the strength of its technology and business model. AD8 is working on delivering medium-term strategic priorities and seems well-placed to benefit from the economic recovery. The company also launched a range of tactical marketing campaigns highlighting the benefits of Dante networking amid COVID-19. As per ASX, the stock of AD8 is trading close to the average of its 52-week trading range of $2.51 - $9.3, proffering a decent opportunity for investors. We have valued the stock using the EV/Sales multiple based illustrative relative valuation approach and have arrived at a target price of low double-digit upside (in percentage terms). For the said purposes, we have considered Infomedia Ltd (ASX: IFM), ELMO Software Ltd (ASX: ELO) and Nearmap Ltd (ASX: NEA) as peers. Considering the current trading levels, recent trading update and strength of the company’s business model, we recommend a ‘Buy’ rating on the stock at the current market price of $5.3, down by 1.487% on 16 July 2020.

LiveHire Limited

LiveHire Wins Large USA Direct Sourcing Contract in Retail: LiveHire Limited (ASX: LVH) provides cloud-based human resources software and platform services. As on 16 July 2020, the market capitalisation of the company stood at ~$57.56 million. The company has won a US Direct Sourcing contract with SASR (Set and Services Resources) to hire high volumes of contract workers for a major US retailer for 24 months. The estimated annual contract value for this Direct Sourcing Talent Cloud is $440,000.

Quarterly Update: During the quarter ended 31 March 2020, the company added 9 new clients, bringing total clients past a key milestone of 100, to 106 and witnessed a YoY increase of 34% in ARR to $3.3 million. In the same time span, the company entered the New Zealand market with multiple client wins.

Quarterly Financial and Operational Highlights (Source: Company Reports)

LVH Expands Technology Marketplace with New Integrations: The company has expanded its technology marketplace with 4 new integrations -CVCheck, fit2work, Revelian and TestGrid. These integrations will offer a great user experience for recruiters and candidates, saving a huge amount of inefficiencies and keeping all data from third-party solutions accessible directly on LiveHire.

Key Risks: The company is exposed to a variety of risks including the risks from general economic conditions in Australia and globally; exchange rates; competition in the markets in which the company operates; weather and climate conditions; and the inherent regulatory risks in the businesses of the company. The stock is also thinly traded and may pose difficulty for the investors to exit the market.

Stock Recommendation: The company has reduced its cost base and expects that these cost reductions will materially increase the company’s run rate. The multi-functionality and flexibility of the company’s platform offer a unique competitive advantage in a volatile and fluid economic environment. As per ASX, the stock of LVH gave a return of 65.22% in the past three months and is currently trading close to its  52-week low levels, proffering a decent opportunity for accumulation. On a (Trailing Twelve Months) TTM basis, the stock is trading at a price to book value multiple of 2x, lower than the industry average (Software & IT Services) of 4.7x, and thus seems undervalued. Considering the current trading levels, attractive returns in the past three months, expanded marketplace and growth opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the market price of $0.190.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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