Stocks’ Details

The Citadel Group Limited

Accelerated Growth Through Acquisitions:The Citadel Group Limited (ASX: CGL) provides software and services, product sales and installation, and consulting and professional services to the technology sector in Australia.

Recent Updates:The company recently updated that Pie Funds Management Limited has reduced its voting power to 7.38%. In another recent announcement, the company updated about the Share Purchase Plan for up to $30,000 of fully paid ordinary shares, with issue scheduled on 8 April 2020. Funds raised through the SPP will be used for the acquisition of Wellbeing Software Group Limited. The company also notified that the general meeting of shareholders will be held on 30^th March 2020.


Key SPP Dates (Source: Company Reports)

1HFY20 Results: During the first half ended 31^st December 2019, the company saw strong revenue growth in the software segment on the back of investments made to enhance its software capabilities. The company aims to build long-term recurring revenue streams and is focused on increasing the proportion of software revenue.Pursuant to the above objective, the company also signed contracts that will compliment its strategy to expand the software segment. Two such deals included a 10-year contract extension with Queensland Health and a new contract with Melbourne Genomics Health Alliance.


H1FY20 Results (Source: Company Reports)

Outlook: In FY20, the company is expecting an uplift in revenue and EBITDA, as a result of low double- digit organic growth. The platform has so far established 150 long term relationships and invested in R&D to serve better value to clients for carrying the growth momentum into H2FY20.

Valuation Methodology: Price to Earnings Based Valuation

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

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

Stock Recommendation: The stock of the company generated returns of 8.93% over a period of 6 months. CGL’s growth in 1HFY20 was backed by growth in its software segment along with the successful integration of Noventus into the business. Recently, the company has also entered into another agreement to acquire Wellbeing Software Group Limited, transforming CGL into a global healthcare company. We have valued the stock using Price to Earnings based relative valuation method and for the purpose, have taken the peer group - Infomedia Ltd (ASX: IFM), Appen Ltd (ASX: APX) and Cirrus Networks Holdings Ltd (ASX: CNW). We have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $4.00, down 6.323% on 02^nd March 2020. 
 

Dicker Data Limited

Strong Performance in FY19:Dicker Data Limited (ASX: DDR) is engaged in the wholesale distribution of computer hardware, software and related products.

FY19 Results: The company recently announced its results for the year ended 31^st December 2019, wherein revenue from ordinary activities came in at $1,761.3 million, representing an increase of 17.9% on the prior corresponding year. Recurring software revenue stood at $366.5 million, up 47.9% on pcp.NPAT for the period stood at $54.3 million, up 67.3% on pcp. During the year, the company reported incremental revenue of $29.9 million from 15 new vendors added during FY18. The above financial results exceeded the updated guidance provided in October 2019. The company declared a final dividend of 13 cents per share, with payment to be made on 2^nd March 2020.


FY19 Results (Source: Company Reports)

Key Priorities in FY20: In FY20, the company will work on accelerating its DDFS (Dicker Data Financial Services) offerings to match with the growing demand for as-a-Service solutions. It will work with vendors to cater to the needs of its fastest growing partner segment, Managed Service Providers. With the emerging popularity of 5G networking, the company has numerous opportunities to capitalise on the new devices and infrastructure required by customers.
Stock Recommendation: Over a period of one year, the stock generated positive returns of 78.08% and is currently trading above the average of its 52-week trading range of $3.240 - $8.090. Despite, the robust results reported in FY19, the share price tumbled by ~5% on 28^th February 2020 due to the fall in S&P/ASX 200 Index as a result of concerns surrounding the coronavirus. The company has built diverse long-term relationships with vendors and continued to add new ones on the platform to reduce dependency on a single vendor. Considering the backdrop of the above factors and the performance delivered in FY19, we have a watch stance on the stock at the current market price of $5.820, down 1.855% on 02^nd March 2020. 
 

Rhipe Limited

Continued Growth in Licensing Revenue:Rhipe Limited (ASX: RHP) provides complete end-to-end cloud solution to its customers. Recently, the company updated that the Commonwealth Bank of Australia now holds 0.31% of the voting power in RHP. In another shareholder update, the company notified that Mitsubishi UFJ Financial Group, Inc., increased its voting power from 7.47% to 8.50%.

Half Yearly Performance: During the first half ended 31^st December 2019, the company witnessed continued growth due to the demand for public cloud software and infrastructure, especially Microsoft Azure and O365. Sales for the period went up by 33% as compared to a growth rate of 30% in the prior corresponding half. Operating expenses increased by 23.6% and NPAT went up by 53%. The Board declared an interim fully franked dividend of 1.2 cents per share.


Results Highlights (Source: Company Reports)

Outlook and Guidance: In FY20, the company expects to report an operating profit of $16 million, excluding the impact of Japan joint venture. As a result of delays in hiring the required resources in Japan, the company reduced the targeted investment in the JV to ~$1.5 million. Savings from the same will now be directed towards the recently acquired businesses, DBITS (Dynamic Business IT Solutions Pty Ltd) and SmartEncrypt. Operating profit including the above costs is expected to be in the range of $13 million - $14 million.

Valuation Methodology: EV/EBITDA Based Valuation

EV/EBITDA Multiple Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: Over a period of 1 year, the stock generated positive returns of 8.12% and is currently trading close to its 52-week low level of $1.585. Since the launch of its public cloud software business, the company has seen significant contribution from the sale of Microsoft’s products. As a result, the company witnessed robust growth in its Licensing business and has material investments in its Solutions business to support further growth. The company ended 1HFY20 with a strong cash position, after paying $2.8 million in dividends. We have valued the stock using EV/EBITDA based relative valuation method and for the purpose, have taken the peer group - Superloop Ltd (ASX: SLC), Data#3 Ltd (ASX: DTL), TechnologyOne Ltd (ASX: TNE), etc. We have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $1.760, up 1.734% on 02^nd March 2020. 

Link Administration Holdings Limited

Positive Results from the Transformational Strategy: Link Administration Holdings Limited (ASX: LNK) provides technology-enabled administration, securities registration and asset services to over 6,000 clients globally. The company recently updated that Sally Pitkin, Director of the company, acquired 15,000 fully paid ordinary shares for a total consideration of $70,796.64.

1HFY20 Results: During the six months ended 31^st December 2019, the company generated revenue amounting to $624 million, down 4% on pcp. Operating EBITDA and Statutory NPAT went down by 11% and 85%, respectively. Despite the above results, the company declared an interim fully franked dividend of 6.5 cents per share. The performance in 1HFY20 was a result of the simplication and transformation process, which realigns the Link Group into five global business units. So far, the company has delivered $11.5 million of in-year savings, with annualised savings of $50 million targeted over the next 2.5 years. Moreover, the company strengthened its performance through various strategic initiatives, including the expansion of the Banking & Credit Management (BCM) business through the takeover of Pepper European Servicing, entry into the UK pension market through its investment in Smart Pension, and continued contribution from PEXA.


Key Financial Metrics (Source: Company Reports)

Outlook: For FY20, the company expects operating NPATA to be at least $160 million and is confident about its medium-term outlook. Operating EBITDA for the year is expected to be ~10% lower than pcp. PEXA is expected to be a key contributor to growth in the future. In addition, the company expects revenue from Retirement & Superannuation Solutions (RSS) in the range of $480 million - $500 million. The RSS business is expected to see a positive impact from the recent strategic partnership with Smart Pension.

Valuation Methodology: EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: Over a period of 6 months, the stock gave negative returns of 4.28% and is currently trading very close to its 52-week low level of $4.500. Considering the strategic initiatives in 1HFY20, savings from the transformational strategy and a decent outlook, we have valued the stock using EV/Sales based relative valuation method and for the purpose, have taken the peer group - Computershare Ltd (ASX: CPU), TechnologyOne Ltd (ASX: TNE), WiseTech Global Ltd (ASX: WTC), etc. We have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $4.560, down 2.979% on 02^nd March 2020.

Comparative Price Chart (Source: Thomson Reuters)

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