Nuix Limited

NXL Details

UBS Group AG Became Substantial Holder: Nuix Limited (ASX: NXL) is a SaaS-based platform that provides investigative analytics and intelligence software solutions. They have a global footprint with 424 full-time employees across North America, EMEA and APAC regions and above 1000 customers across 78 countries. UBS Group AG and its related bodies corporate has recently become a substantial holder in the company by holding around 5% of voting power. In a recently released Investor presentation, the company announced that it is going to benefit from the organic data growth of its customers, with expected revenues from transition to consumption models not fully factored into FY21F revenues.

H1FY21 Financial Overview: During H1FY21, NXL reported revenue of ~$85.33 million, down by 3.9% as compared to H1FY20. Reported net loss stood at ~$16.57 million in H1FY21, relative to a net profit of ~$14.48 million in H1FY20. Statutory EBITDA for the period stood was negative and stood at ~$4.37 million. However, after offsetting non-recurring expenses and adjusting for share-based compensation and tax impact, the reported Pro-forma EBITDA was ~$31.58 million. Pro-forma NPAT was ~$9.49 million, relative to ~$30.57 million and ~$11.93 million in H1FY20, respectively. The unfavourable revenue growth was attributed to the customer migration from on-premise software licencing to consumption-based licencing, which altered revenue recognition from upfront to overtime. Similarly, NPAT was adversely affected by unfavourable exchange rates, which materialized to a loss of ~$3.00 million and higher amortization charges due to the capitalized development cost, partially offset by lower tax expenses and higher EBITDA.

Key Financial Results (Source: Company Reports)

ACV as a Key Performing Indicator: During H1FY21, NXL has reported an Annualized Contract Value (ACV) of ~$162 million, up by 3.2% as compared to H1FY20, as a result of strong subscriptions, frequent renewals, high customer retention, low customer churn rate of 4.2% and increased multi-year deals.

Annualized Contract Value (Source: Company Reports)

Diversified Customer-Based Across Industry and Region: NXL has diversified its operations across varied regions and industries. In FY20, total revenue contribution by region was 56% by North America, 28% by EMEA and 16% by APAC. As far as the industries are concerned, 35% of their revenue comes from Advisors, 19% from Corporates, 20% from Government, 11% from Law Firms, and the rest 15% from New Strategic Markets. The highly diversified client base protects NXL from significant market disruptions.

Client Portfolio (Source: Company Reports)

Key Risks: NXL is heavily susceptible to currency risks due to international operations. The industry is highly competitive, and operations are subject to legal and regulatory obligations. Recent COVID-19 turmoil may further aggravate financial health.

Outlook: Momentum building with new businesses, up by over 17% YoY, the addition of 49 new clients over the past six months and growing SaaS deals are expected to drive revenue growth. Continued investment in R&D (26% of H1FY20 revenues) would result in product enhancement and higher revenue in forthcoming years. However, the recent shift from module-based subscription to consumption-based subscription is expected to have a negative short-term impact. As a result, Pro-forma revenue, EBITDA and ACV forecasts were revised from ~$193.5 million to ~$180-$185 million, ~$199.6 million to ~$168- $177 million and ~$63.6 million to ~$64.6- $66.6 million, respectively.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last one month, the stock went down by ~32.43%. The stock made a 52-weeks’ low and high of $3.300 and $3.400, respectively. The stock of NXL has a support level of ~$2.994 and a resistance level of ~$4.643. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peers, considering higher customer acquisition strategies, increasing ACV, sustainable revenue growth and diversified client base. We have taken peers like Life360 Inc (ASX: 360), LiveHire Limited (ASX: LVH), Nearmap Limited (ASX: NEA), to name a few.  Considering the current trading levels, increasing revenues, rising R&D investment for product enhancements and rising demand, partially offset by high competition and associated risks of the COVID-19 situation, we give a ‘Buy’ rating on the stock at the current market price of $3.500, up by 11.464% as on 18 May 2021. The significant intraday jump came from the 18 May 2021 release of notice of initial substantial holder (highlighting UBS Group AG and its related parties) and release of Investment Day Presentation, which demonstrated high growth potentials.

NXL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Laybuy Group Holdings Limited

LBY Details

Announcement of New GM Role for UK: Laybuy Group Holdings Limited (ASX: LBY) is a provider of an integrated payment platform that operates on the Buy-Now-Pay-Later (BNPL) model. The company renders services in New Zealand, Australia, UK and the US via building a payment market space for customers and merchants. On 13th May 2021, Laybuy appointed John Gillian as a General Manager UK and Europe intending to drive continued growth. The announcement comes amidst the triple-digit GMV growth in the UK (504%) in FY21 on a YoY basis.

LBY Delivered Record sales in April 2021: On 6th May 2021, the company announced a record Gross Merchandise Value (GMV) on “Mania” event in the UK of ~NZ$2.9 million and in ANZ of ~NZ$1.9 million, an increase of 70% and 3% as compared to Mania April 2020, respectively. During Mania April 2021, website visitors were up by 35% relative to Mania November 2020. Overall GMV in April 2021 amounted to ~NZ$60.2 million, an increase of 52% on the prior comparative period. In the UK, Laybuy recorded GMV growth of 85%, with active customers and active merchants up by 166% and 436%, respectively.

Q4FY21 Financial Overview: During Q4FY21, LBY recorded annualized GMV and quarterly revenue of ~NZ$645 million (up 129% on pcp) and ~NZ$9.8 million (up 105% on pcp), respectively. Net Transaction Margin (NTM) stood at 2.5% of GMV, up from -0.3% in Q4FY20 due to a significant reduction in customer defaults. Reported gross losses as a percentage of GMV stood at 2.1% as compared to 2.8% in Q3FY21, reflecting improved credit performance.

Quarterly Revenue (Source: Company Reports)

Takeaway from Key Performance Matrices: The drastic improvement in Q4FY21 in financial health was primarily driven by increased active customers to 756,000 (87% on pcp), increased active merchants (75% on pcp) and UK GMV growth of 504% in FY21 as compared to FY20. In Q4FY20, purchasing frequency increased across ANZ and UK regions with repeat customers increased from 66% to 73% in ANZ and 44% to 62% in the UK on a pcp basis. The rise in active customers and active merchants was due to the strong build-up of the Merchant portfolio and active promotional activities.

Active Customers and Active Merchants (Source: Company Reports)

Key Risks: LBY’s financial model is highly susceptible to credit losses and increased bad debts, frauds and requirement for provisioning for impairment losses. Additionally, recently increased operations in the UK and further international expansions may aggravate currency risk.

Outlook: LBY seeks solid growth in FY22 across all markets as it continues to deliver key strategic initiatives. During FY22, the company will be building up its merchant portfolio with well-known brands, for instance, Debenhams, Dorothy Perkins and Burton in the UK, Stateside Sport, bailey Nelson and Tony Bianco in Australia and Vodafone, Future Fashion Brands and Overland Footwear in New Zealand. Considering the current COVID-19 scenario and contact-less era, LBY will subsequently launch a “Tap-to-Pay” digital card payment facility in May 2021. Moreover, lower defaults and increased repeat customer rate is expected to improve 12-month rolling average NTM. However, the recent COVID-19 scenario may inherent uncertainties.

Trading Halt Update: Over the last one month, the stock went down by ~27.66%. The stock made a 52-weeks’ low and high of $0.645 and $2.300, respectively. On 18 May 2021, the company’s securities were placed in trading halt at the request of LBY, pending an announcement related to a proposed capital raising by the company. The trading halt will remain in place until the earlier of commencement of trading on 20 May 2021, or when the announcement regarding the proposed capital raising is released. The stock was last traded at $0.680. 

LBY Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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