Stocks’ Details
 

Data#3 Limited

Decent Rise in Revenue: Data#3 Limited (ASX: DTL) is engaged in the supply of IT solutions for organisations' 'Hybrid IT' environments. The company’s offerings include consulting, software, infrastructure and managed solutions. As on 21 January 2020, the market capitalization of the company stood at ~$622.06 million. During FY19, the total revenue of the company increased by 19.8% to $1,415.6 million and group’s total net profit after tax went up by 28.7% to $18.1 million from $14.1 million in FY18. The strong financial performance of the company enabled the board to declare fully franked dividends of 10.7 cents per share, representing a payout ratio of 91.0%.


FY19 Financial Performance (Source: Company Reports)

Strong 1H Earnings Growth: The company expects that its consolidated net profit before tax for the first half of 2020 financial year to be at the top end of the guidance of $11 million to $12.5 million. It also intends to announce the audited interim results and interim dividend on 19 February 2020.

Valuation Methodology: Price/Earnings based Approach

Price/Earnings based Approach (Source: Company Reports)

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

Stock Recommendation: As per ASX, the stock of DTL gave a return of 10.68% in the past 3 months and a return of 3.59% in the past one month. The stock is currently trading close to its 52-week high of $4.47. During FY19, Return on Equity stood at 39.2%, higher than the industry median of 15%. This indicates that the company is well deploying the capital of its shareholders and is capable of generating profits internally. Considering the returns, trading levels and decent outlook, we have valued the stock using Price/Earnings based approach and arrived at a downside of lower double-digit (in percentage terms). For the said purposes, we have considered Appen Ltd (ASX: APX), CSG Ltd (ASX: CSV) and Hansen Technologies Ltd (ASX: HSN) as peers. Hence, we recommend an “Expensive” stance on the stock at the current market price of $4.20, up by 3.96%, owing to its recent release of earnings guidance expectation.
 

Xref Limited

Issue of Placement Shares: Xref Limited (ASX: XF1) develops human resources technology that automates the candidate reference process for employers. As on 21 January 2020, market capitalization of the company stood at ~$63.21 million. The company has recently announced that it has issued 10,593,939 new fully paid ordinary shares at a consideration of $0.33 per share and raised $3,496,000 before costs. These funds will be used to support further growth of Xref, including additional sales and marketing capability, technology development and working capital requirements, and other general corporate purposes.

Strategic Alliance of CVCheck and Xref: Xref Limited has recently formed a strategic alliance with CV Check Limited which will provide the best-of-breed solutions for all candidate verification. The company in its September quarter report stated that it achieved record credit usage of $2.24 million. In the same time span, cash receipts stood at $3.53 million following the record sales in June, reflecting an increase of 31% on the $2.7 million recorded in the previous corresponding quarter.


Sales & Credit Usage (Source: Company Reports)

Stock Recommendation: As per ASX, the stock of XF1 is trading close to its 52-week low of $0.310, proffering a decent opportunity for accumulation. The company has added new clients and witnessed continued growth trajectory. Xref Limited has opened wider market of potential users and also welcomed its first employees in the US. During FY19, the company has witnessed substantial improvement in net margin. Considering the current trading levels, growth curve and decent financial performance, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.360, up by 1.408% on January 21, 2020. 
 

Splitit Payments Ltd

Strong Black Friday Sales: Splitit Payments Ltd (ASX: SPT) provides credit card-based instalment solution to businesses and merchants. As on 21 January 2020, the market capitalization of the company stood at $202.5 million. The company has recently appointed Mr. Brad Paterson as Managing Director, along with Mr. Jan Koelble who has joined as an Independent Non-Executive Director. The company gave an update on Black Friday and Cyber Monday sales and stated that it witnessed strong performance over the four-day trading period. 

In the recently held Annual General Meeting, the Management stated that the company witnessed  significant growth in all key performance metrics in Q3 of FY19 with an increase in Merchants to 624 and rise in customers to 235,000 from 197,000 in Q2 of FY19. The merchant wins include leading US consumer brands Chili Technology, Eight Sleep, BlueFly, Ashford, Nili Lotan and Ace Marks.

 
Operational Highlights (Source: Company Reports)

What to Expect from SPT: The company is well-positioned to accelerate merchant acquisition, partnerships and drive consumer adoption and is focusing on eCommerce markets with high credit card use. It is prioritising to expand the country footprint in the second half of FY20 and will continue to invest in marketing in order to build the Splitit brand and add meaningful innovation to the market. 

Stock Recommendation: As per ASX, the stock gave a return of 18.18% in the past six months and is trading close to its 52-week low of $0.305, proffering an opportunity for accumulation. During FY19, gross margin of the company stood at 90.4%, higher than the industry median of 74.5%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. The company also reported a strong financial position with Debt/Equity of 0.01x, lower than the industry median of 0.34x. On TTM basis, the stock is trading at price/Book value multiple of 3.8x, lower than the industry average (Software and IT Services) of 4x. Considering the returns, trading levels, higher gross margin and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.650 on 21 January 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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