Stocks’ Details
 

Altium Limited

Decent Bottom-line Growth in FY19:Altium Limited (ASX: ALU) is involved in the development and sales of computer software for the design of electronic products. Recently, Mitsubishi UFJ Financial Group, Inc. ceased to be the substantial holder in the company, effective from November 15, 2019.

On November 18, 2019, the company informed the market about the resignation of Wendy Stops, independent Non-Executive Director and Chair of the Board Human Resources Committee. The reason can be attributed to clash between her commitments to the Altium Board schedule and Company events with other Board commitments.

FY19 Key Highlights for the period ended June 30, 2019:Revenue growth across all business units and all key regions increased by 23% to US$171.8 Mn. This was driven by record growth in new Altium Designer seats of 27% and record growth of 13% in the subscription base to more than 43,600 subscribers. Moreover, China led the outstanding growth in revenue by 37%. Net profit after tax for the period increased by 41% to US$52.9 Mn. The Board of Directors declared an unfranked final dividend of 18 cents per share (AUD) with record date and payment date on September 4, 2019 and September 25, 2019, respectively.


FY19 Key Metrics (Source: Company Reports)

What to Expect:As per the release, the company is focusing intensely on investing to accelerate future growth, underpinned by an increase in its efficiency and reach of its transactional sales model and rolling out its new cloud platform Altium 365. These initiatives are expected to drive the company’s market dominance and the achievement of its 2025 targets of 100,000 subscribers and US$500 Mn in revenue. The Management has stated that with the current momentum, they would help it surpass the 2020 revenue target of US$200 Mn.

Stock Recommendation:ALU’s share generated a positive YTD return of 61.45%. The stock is currently trading close to its 52-week high of $38.490. EBTDA margin and net margin for FY19 stood at 36.9% and 30.6%, better than the industry median of 27.3% and 15.1%, respectively, implying decent fundamentals of the company. ROE for FY19 stood at 31.4%, better than the industry median of 12.6%. On the valuation front, EV/Sales multiple on TTM basis stands at 16.2x, higher than the industry median of 5.1x, indicating the overvalued position at the current juncture.Hence, we recommend an “Expensive” rating on the stock at the current market price of $34.380, down 1.462% on November 25, 2019 and suggest investors to wait for the better entry levels.
 

Afterpay Touch Group

APT’s Share Surged ~7% Post Final Audit Report:Afterpay Touch Group (ASX: APT) is involved in providing technology-driven payment solutions for consumers and businesses through its Afterpay and Pay now services and businesses. On November 25, 2019, an external independent auditor Mr Neil Jeans, confirmed that APT’s current program is aligned with the AML/CTF Act and it is a low-risk business in regard to its vulnerability to be used for money laundering or terrorist financing. AUSTRAC is expected to analyse the report and determine whether it will take any further action. APT has suggested full cooperation with AUSTRAC both in relation to the Report and AML/CTF compliance.
In another update, the company announced a business update for the four months period ended October 31, 2019, wherein it highlighted that the underlying sales increased by 110% to $2.7 Bn as compared to the previous corresponding period and 23% on Q-o-Q. Active customers number for the period increased by 137% on pcp to 6.1 Mn and 32% on Q-o-Q. Active Merchants number for the period increased by 96% (on pcp) to 39,450 and 22% on Q-o-Q. The company also mentioned that it was included in the global 2019 Fintech 100, recently compiled by KPMG and H2 Ventures.


Company Data as on October 31, 2019 (Source: Company Reports)

What to Expect:The strategic agreement with Mastercard in Australia and New Zealand is expected to support the company’s mid-term growth. Private placement of A$200 Mn and proposed strategic partnership with leading US-based technology investor, Coatue Management is expected to help the company in its global platform expansion opportunities beyond mid-term plan deliverables.

Stock Recommendation:APT’s share is trading close to its 52-week high of $37.410. Company’s underlying sales improved by a decent margin than prior period. There is a huge improvement in the customer’s and merchant’s number. Moreover, the company is engaged in strategic partnerships with renowned players in the global markets.

Its gross margin for FY19 stood at 77.4%, better than the industry median of 76.2%. Current ratio for FY19 stood at 5.78x, better than the industry median of 2.81x. Debt to equity ratio for FY19 stood at 0.08x, lower than the industry median of 0.56x. On the valuation front, its EV/Sales and EV/EBITDA multiples on TTM basis stand at 23.8x and 186.8x, higher than the industry median of 2.1x and 7.0x, respectively, indicating an overvalued position at the current juncture. Hence, looking at the aforesaid facts and valuations, we recommend an “Expensive” rating on the stock at the current market price of $32.640, up 7.051% on November 25, 2019, on account of the release related to the final audit report.

Appen Limited

Underlying NPAT for H1FY19 Improved By 67% on PCP:Appen Limited (ASX: APX) is involved in the provisioning of quality data solutions and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers and government agencies. On November 22, 2019, the company announced that 1,115,130 fully paid ordinary shares, currently held under voluntary escrow, are due for release on 09 December 2019, as per the listing rule 3.10A.

H1FY19 Key Highlights for the period ended June 30, 2019:Revenue for the period increased by 60% to $245.1 Mn on pcp. Underlying EBITDA for the period increased by 81% to $46.3 Mn on pcp. Underlying NPAT for the period increased by 67% to $29.6 Mn on pcp. Company’s speech and image data grew by 85% in the first half of the last year. Revenue from its core business grew by 48% and underlying EBITDA margins expanded from 16.8% to 18.9%.
The Board has declared an interim dividend of 4.0c per share, partially franked in-line with the same period in the last year.


H1FY19 Key Metrics (Source: Company Reports)

FY19 Guidance:Underlying EBITDA for FY2019 ending December 31, 2019 has been estimated at $96 Mn to $99 Mn as compared to the previous guidance of $85 Mn - $90 Mn. The increase in earnings forecast is driven by an increase in monthly relevance revenues and margins, largely from existing projects with existing customers. The Company reinforces its high conviction for the acquisition of Figure Eight and confirms previous 2019 ARR (Annual Recurring Revenue) guidance of $30 Mn - $35 Mn.

Gartner estimates that the number of AI projects per organisation is growing at 106% per annum. The Company’s ongoing investment in technology uniquely positions the company to meet the market’s demand for high volumes of quality data at speed across multiple data types for a growing number of use cases.

Stock Recommendation:APX’s share generated a positive YTD return of 90.62%. The company is expected to continue with its growth story into the high-growth AI data market. The ‘speech and image’ is gathering speed, and the company is witnessing an increase in use cases, underpinned by increased demand for more data by existing customers to develop new AI products and to improve their existing offerings. On the margins front, its gross margin and EBITDA margin for H1FY19 stood at 40.8% and 16.6%, better than the H1FY18 result of 36.2% and 16.2%, respectively. Its Debt to equity ratio for H1FY19 stood at 0.07x, lower than the industry median of 0.53x. Hence, considering the aforesaid facts, improving FY19 guidance and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $23.770, down 2.582% on November 25, 2019.

 
 Comparative Price Chart (Source: Thomson Reuters)

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