Stocks’ Details

Computershare Limited

Management EPS to Improve in 2HFY20:Computershare Limited (ASX: CPU) is engaged in the provision of investor services, employee share plan services, communication services, etc.

1HFY20 Results: The company recently updated that revenue for the six months ended 31^st December 2019 amounted to $1,141.7 million, up 1.2% on prior corresponding period. EBITDA for the period came in at $338.7 million, up 2.2% on prior corresponding period. EPS for the period went down by 16.7%, as a result of reduced margin income, increased tax rate and UK Mortgage Services. During the period, group recurring revenues increased to 78.3% of total revenue. Free cash flow for the period went up by 68.5%. The company reported continued progress in the Issuer Services business, with Employee Share Plans and US Mortgage Services performing up to the mark.


1HFY20 Revenue Break Up (Source: Company Reports)

2HFY20 Outlook: In the second the half, the company is expected to see growing contribution from the new Issuer Services business in the US, with continued momentum in US Mortgage Services and Employee Share Plans.The company is on track to complete the migration of UK Mortgage Services by May 2020 and is delivering cost reductions as per expectations. Moreover, the company expects the tax rate in the second half to be lower than the first half. Apart from the above positives, the company may face some challenges in the form of higher net interest charge after the completion of Corporate Creations acquisition, weak Corporate Actions activity, etc.


FY20 Key Priorities (Source: Company Reports)

Valuation Methodology:P/CF based Valuation

P/CF Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company generated positive returns of 16.61% over a period of 6 months. In FY20, the company expects management EPS to be ~5% lesser than pcp in constant currency, including a management EPS of ~1.5 cents per share, higher than 2HFY19. We have valued the stock using Price to Cash Flow based relative valuation method and have arrived at a target price offering an upside of higher single-digit (in % terms). Considering the decent 2H outlook, valuation, and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $17.450, down 0.57% on 12^th February 2020.
 

ELMO Software Limited

Execution of the Binding Agreement to Acquire Vocam: ELMO Software Limited (ASX: ELO) provides SaaS, cloud-based human resources and payroll solutions. The company recently announced the acquisition of 100% shares in Vocam group entities, a cloud-based HR and safety video content provider. The acquisition will bring in $1.5 million of revenue earned by the latter over the last 12 months to 31^st December 2019, with subscription revenue accounting for 95% of the total. The acquisition will help ELMO software to enhance its offerings with respect to video content, increase the customer base, and tap cross-sell opportunities.

First Half Results: During the first half ended 31^st December 2019, the company generated annualised recurring revenue (ARR) amounting to $52.0 million, up 42.8% on the prior corresponding period. Average ARR per customer came in at $35.2k, up by $2.8k per customer as at 31^st December 2018. At the end of the period, the company had 1,478 customers on its platform, representing growth of 30.9% from the prior corresponding period.
FY20 Guidance: The company expects to generate organic annualised recurring revenue in the range of $61 million - $63 million in FY20. Including a contribution of $1.5 million from Vocam, FY20 ARR is expected in the range of $62.5 million - $64.5 million.


FY20 Guidance (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of 13.23% over a period of 1 month and is currently trading close to its 52-week high level of $7.740. During 1HFY20, the company reported a substantial increase in its customer base which can be a key catalyst for future growth. Considering the performance in the first half, acquisition of Vocam, FY20 guidance, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $7.700, up 4.62% on 12^th February 2020, on account of the financial results for 1HFY20.

Carsales.com Limited

Interim Dividend up 7% on PCP: Carsales.com Limited (ASX: CAR) is an online automotive, motorcycle and marine classifieds business, enabling Australians to buy and sell cars, trucks, and other automobiles on the platform.
Financial Performance: During the half year ended 31^st December 2019, the company reported record performance despite challenging market conditions. Revenue and NPAT went up by 5% and 7%, respectively, on the prior corresponding period. The company saw increased contribution from its international portfolio, remarkable performance of the core Australian business, and margin expansion. The Board declared an interim dividend amounting to 22.0 cents per share, up 7% on the prior corresponding period.


Financial Results (Source: Company Reports)

Outlook: For FY20, the company is expecting robust growth in group revenue, adjusted EBITDA and adjusted NPAT. The company has reported continued growth in its domestic business during January. In the Display business, it is expecting to report a similar performance to pcp. While Korea and Brazil are expected to see good growth in revenue and earnings, other Latin American businesses are expected to see similar 2HFY20 growth rates as in the first half.

Valuation Methodology:P/E Based Valuation

P/E Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company generated returns of 47.20% over a period of 1 year and is currently trading very close to its 52-week high of $19.600. The company reported a strong performance in the first half and expects decent results for the second half. The international segment reported excellent growth and the Australian business was strong enough to withstand market conditions. We have valued the stock using Price to Earnings based relative valuation method and for the purpose, have taken the peer group - REA Group Ltd (ASX: REA), Seek Ltd  (ASX: SEK), Telstra Corporation Ltd (ASX: TLS), etc. As a result, we have arrived at a price correction of single-digit (in % terms). Considering the backdrop of the above factors, we have a watch stance on the stock at the current market price of $19.090, up 8.343% on 12^th February 2020.
 

Sky Network Television Limited

Decent Performance in 1HFY20:Sky Network Television Limited (ASX: SKT) provides sports and entertainment media services in New Zealand.

Financial Highlights for the Period Ended 31^st December 2019: During the period, the company reported strong progress across its strategic priorities. Total subscribers on the platform increased to 795,000, as compared to 750,000 a year ago. Moreover, the company expects continued momentum on the back of the Lightbox acquisition and targets to reach the 1 million mark in customers. Revenue for the period came in at $384.8 million, down 5% from the prior corresponding period. However, the company is seeing positive signs as the churn performance improved from 15% to 13%.


Key Financials (Source: Company Reports)

Outlook: Revenue for FY20 is expected to be between $750 million and $770 million. EBITDA is expected in the range of $170 million - $190 million. Overall, the company expects its business to flourish further with a customer centric approach.

Stock Recommendation: The stock of the company is currently trading at its 52-weeks low level of $0.570. During the first half, the company introduced various developments into its platform, including the acquisition of RugbyPass, increase in total subscribers, improved satellite customer churn, etc. Moreover, it performed decently on the financial front and expects further growth in FY20 after the acquired businesses are integrated into the platform. Going forward, the company is planning to launch new services and products to enhance customer experience. The company has invested heavily in its growth initiatives and we look forward to the returns from the investments made. Considering the backdrop of the above factors, we have a wait and watch stance on the stock at the current market price of $0.570, down 5% on 12^th February 2020, after the release of first half results.

 
Comparative Price Chart (Source: Thomson Reuters)

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