CAE Inc.

CAE Details

CAE Acquires Flight Stimulation Company: CAE Inc. (NYSE: CAE) is focused on designing and integrating training solutions for the civil aviation, defence and security, and healthcare markets. On November 16, 2020, the company has announced the acquisition of Flight Simulation Company B.V. for cash consideration of €70 million on the basis of a business value of €100 million.

CAE Announces a Public Offering of Common Shares and Private Placement with CDPQ: On November 16, 2020, the company announced that it has entered into an agreement with Scotia Capital Inc., RBC Dominion Securities Inc., and TD Securities Inc., to purchase 10,060,000 common shares for $29.85 per share, generating gross proceeds of approximately $300 million. Also, the company entered into an agreement with Caisse de dépôt et placement du Québec for private placement in Canada for common shares generating gross proceeds of approximately $150 million. Proceeds from both the transactions would be used for general corporate purposes, including funding future potential acquisition and growth opportunities.

2Q FY21 Financials Highlights: Recently, the company announced its second-quarter update, wherein, the company reported total revenues of $704.7 million, down by 21% on a y-o-y basis, due to the impact of covid-19 on all operating business. Operating profit during the quarter came in at $28.2 million as compared to $124.8 million in 2QFY20. In the same period, the free cash flow came in at $44.9 million as compared to a negative $7.1 million in the previous corresponding year. During the period, net cash provided by operating activities stood at $45.6 million, which increased from $36.7 million in 2QFY20.

Quarterly Financial Highlights (Source: Company Reports)

Outlook: The company is looking forward to generating positive free cash flow for the remaining year, and CAE is confident in long-term prospects to emerge from this period in a position of strength.

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: The stock of the company went up by 57.07% in the past three months and is currently trading above the average of its 52-week low and high level of $9.8 and $31.56, respectively. The company has a market capitalization of ~$6.31 billion, with a P/E multiple of 131.94x. On a technical analysis front, the stock has an immediate support level of ~$21.83 and a resistance level of ~$27.30. We have valued the stock using an EV/sales multiple based illustrative relative valuation method and arrived at a target price with a correction of single-digit (in percentage terms). Hence, considering the aforesaid facts, steep returns in the last three months, and valuation, we suggest investors to wait for a better entry level, and give an "Expensive” rating on the stock at the closing price of $23.75, up by 3.35% on 19 November 2020. 

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

Digital Turbine, Inc.

APPS Details

Q2 FY21 Financial Highlights: Digital Turbine, Inc. (NASDAQ: APPS) is engaged in delivering end-to-end products and solutions for mobile operators, application advertisers, device original equipment manufacturers (OEMs) and other third parties to enable them to monetize mobile content. During 2QFY21, the company reported total revenue of $70.9 million, up by 116% on a y-o-y basis, due to a 50% increase in revenues from the application media segment, which came in at $49.1 million in the quarter. The increased content media segment revenues came in at $21.8 million, due to revenues related to the February 2020 acquisition of Mobile Posse, Inc. Net income for the quarter stood at $10.8 million, as compared to a net loss of $1.3 million in Q2 FY20. The EBIDTA, on non-GAAP basis, reported a growth of 265% on a y-o-y basis and came in at $16.5 million. The company’s cash provided by operating activities came in at $23.7 million as compared to $6.7 million in 2QFY20. The Gross margin increased to 42% from 38% reported in 2QFY20. During 2QFY21, the company application media software was installed on more than 60 million devices and on more than 500 million devices to date.

 
Quarterly Financial Highlights (Source: Company Reports)

Outlook: The company has provided guidance for the third quarter of FY21, wherein it expects to report total revenue in the range of $72 million to $75 million, non-GAAP EBITDA between $17 million to $18 million and non-GAAP adjusted earnings per share between $0.15 - $0.16.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Price/Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company exited the quarter with a cash balance of $32.97 million. The stock of APPS gave a return of 3.97% in the past one month and 543.36% in the last six months period. The stock is trading close to its 52-week high level of $43.57. The company has a market capitalization of ~$3.33 billion, with a P/E multiple of 125.13x. On a technical analysis front, the stock has an immediate support level of ~$35.56 and a resistance level of ~$42.75. We have valued the stock using a P/E Value multiple based illustrative relative valuation method and arrived at a target price with a downside of high single-digit (in percentage terms). For the purpose, we have taken peers like Mimecast Ltd (NASDAQ: MIME), Salesforce.Com Inc (NYSE: CRM), to name a few. Hence, considering the aforesaid facts, steep returns in the last six months, valuation and current trading level, we suggest investors to wait for a better entry-level, and hence, we give an "Expensive” rating on the stock at the closing price of $37.54, up by 4.98% on 19 November 2020.

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

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