Stocks’ Details
 

Link Administration Holdings Limited

Diversified Revenue Profile: Link Administration Holdings Limited (ASX: LNK) is involved in the provisioning of technology-enabled administration, securities registration and asset services, for listed and unlisted corporate entities, and pension and superannuation funds throughout the globe. The market capitalisation of the company stood at ~$2.17 Bn as on 1^st July 2020. The company has experienced an adverse impact in some areas of its business due to market volatility caused by COVID-19. In response to that, LNK has executed its plan to safeguard the well-being of its employees, clients and other stakeholders and support operations across all business units.The revenue profile of the group is diversified across jurisdictions and service offerings. The company operates a sustainable business with strong recurring revenue of more than 80%. With respect to fund solutions, the company experienced lower revenue due to COVID-19, which follows the decrease in asset values. However, this revenue is likely to recover over the medium / longer- term as the recovery in asset markets has started. 

The banking and credit management division is likely to benefit from an increase in distressed loans and expects ramp-up of opportunities in newer markets like China and India in the medium to long-term. The following picture gives an overview of key dates for 2020:


Key Dates (Source: Company Reports)

Trading Update: As on 5^th May 2020, the company had processed payments of $3.65 billion for 0.5 million members with respect to retirement and superannuation solutions. The company continues to work with European regulators and clients in order to attain pre-completion approvals for the PES acquisition.

Positive Medium-Term Outlook: Previously, the company had suspended its FY20 guidance due to market volatility. However, the company is optimistic about a decent medium-term outlook with business growth opportunities.
Key Risks: LNK’s business is sensitive to Information and cyber security risk, which arises from the inability of the company to maintain data security. This can leave a negative impact on the group’s reputation, financial performance and ability to achieve its strategic objectives. The group’s performance is also exposed to uncertainty pertaining to the political and regulatory environment, which can affect its business objectives. In response to this risk, the company has diversified its geographic and jurisdictional presence.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company possesses a resilient earnings profile, which is supporting operating cash flow. LNK is well placed to operate through current challenges and has undertaken numerous actions to increase financial resilience. The company is focused on preserving cash flow to reduce net debt.We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Computershare Ltd (ASX: CPU), Perpetual Ltd (ASX: PPT), and TechnologyOne Ltd (ASX: TNE), and arrived at a target price of lower double-digit upside (in percentage terms). Therefore, considering diversified revenue profile, resilient earnings, focus on preserving cash, and long-term outlook, we give a “Buy” recommendation on the stock at the current market price of $4.200 per share, up by 2.439% on 1^st July 2020.

Class Limited

Decent Growth in Revenue: Class Limited (ASX: CL1) is engaged in the provisioning of cloud-based self-managed superannuation fund administration software solutions and services. The market capitalisation of the company stood at ~$163.88 Mn as on 1^st July 2020. During 1H FY20, the company reported operating revenue amounting to $20.5 million, reflecting a rise of 8% and NPAT for the period stood at $3.1 million. Growth in operating revenue was primarily generated by continued account growth and partner initiatives. With respect to Class Portfolio, the company has achieved product clarity and functionality requirements in product & sales roadmap with the overall growth of 16% during 1H FY20. On 1^st February 2020, the company acquired NowInfinity 3505 Pty Ltd, which was founded in 2012 and is now a leading platform in the fintech space.


Class Portfolio Growth (Source: Company Reports)

Expected Revenue Growth: For FY20, the company expects revenue growth of 14%, including NowInfinity. The company would continue to evolve its reimagination strategy through a combination of “Build, Acquire and Partner”.
Key Risks: The group is exposed to credit risk, which is influenced by default on the contractual obligations by any counterparty. This leads to financial losses in the business. CL1’s business is also sensitive to liquidity risk, which requires the company to maintain adequate cash reserves by continuously monitoring actual and forecasted cash flows.

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 4.45x in 1H FY20 as compared to the industry median of 1.82x. This indicates that CL1 is in a decent position to address its short-term obligations. We have valued the stock using a P/CF multiple based illustrative relative valuation methodand arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the decent liquidity position, growth in revenue, overall growth of 16% in the Class portfolio, and current trading level along with the risks stated above, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.370 per share, up by 2.622% on 1^st July 2020.

BrainChip Holdings Ltd

Signing of Joint Development Agreement: BrainChip Holdings Ltd (ASX: BRN) is engaged in the development of software and hardware accelerated solutions for advanced artificial intelligence (AI) as well as machine learning applications. The market capitalisation of the company stood at ~$119.48 Mn as on 1^st July 2020. Recently, the company announced the conversion of 353,201 convertible notes. BrainChip has also inked a joint development agreement with Valeo Corporation for the development of neural network processing solutions for Advanced Driver Assistance Systems (ADAS) and Autonomous Vehicles (AV). This agreement provides for specific performance milestones and payments which are likely to cover BRN’s expenses.

Subsequent to the March 2020 quarter, BRN raised gross proceeds of A$3.1 million through placement of fully paid ordinary shares to two significant institutional investors.Cash outflows from operatingactivities for the March quarter stood at US$3.71 million. During FY19, the company reported revenue amounting to US$75,574 as compared to US$947,989 of FY18


FY19 Revenue (Source: Company Reports)
 
Outlook: The company expects growth opportunities in the emerging markets for Smart Sensors in the Automotive Industry and Industrial IoT.

Key Risks: The risk factor which can impact BRN’s performance include commercial viability and delays of new products and technology, delays in the establishment of an effective sales organisation as well as disruptions in the global economy.

Stock Recommendation: The company closed the March 2020 quarter with a cash balance of US$3.7 million. BRN continues to maintain strict cost control policies. Current ratio of the company stood at 5.63x in FY19 as compared to the industry median of 1.92x, reflecting a decent position of the company to settle its obligations. During the span of one month and six months, the stock of BRN has provided returns of 5.19% and 68.75%, respectively. Hence, in light of the joint development agreement, recent equity raising, expected growth opportunities, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.086 per share, up by 6.173% on 1^st July 2020. 

LiveHire Limited

Secured US Direct Sourcing Contract: LiveHire Limited (ASX: LVH) is engaged in the development of cloud-based human resources software and platform services. The market capitalisation of the company stood at $54.53 Mn as on 1^st July 2020. Recently, the company has secured a US Direct Sourcing contract with SASR (Set and Services Resources). SASR would implement the LiveHire platform in the USA to hire high volumes of contract workers for a major US retailer. The estimated annual contract value for this Direct Sourcing Talent Cloud stood at $440,000.

The company has expanded its technology marketplace with 4 new integrations, namely CVCheck, fit2work, Revelian and TestGrid. During the quarter ended 31^st March 2020, the company reported annualised recurring revenue amounting to $3.3 million with a rise of 34% on a YoY basis. The company added 9 new clients during the quarter, and this brought the total clients to a key milestone of 106.


Key Financials (Source: Company Reports)

Robust Pipeline of Opportunities: The company is well-financed to pursue organic growth, domestically and internationally. Going forward, the company has a robust pipeline of opportunities in key markets.

Key Risks: LVH’s business is sensitive to the data security and privacy risk, and to mitigate the risk, the company has appointed an experienced privacy officer and engaged a third-party Data Security expert. The company is also exposed to financial risks such as credit risk, interest rate risk and liquidity risk.

Stock Recommendation: The company’s 12-months trailing cash receipts to March 2020 stood at $3.9 million, reflecting growth of 27% on a YoY basis. The stock of LVH has corrected by 34.55% and 21.74% during the last one and six months, respectively. The stock is inclined towards its 52-week low level of $0.068. Moreover, the stock of LVH is trading at a price to book multiple of 1.9x as compared to the industry median (Software & IT Services) of 3.0x on TTM basis. Therefore, considering the recent US Direct Sourcing contract, expansion of technology marketplace and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.185, up by 2.778% on 1^st July 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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