Stocks’ Details

Xero Limited

Acquisition Update: Xero Limited (ASX: XRO) provides an online cloud-based accounting platform to businesses. The market capitalisation of the company as on 01 April 2021, stood at ~$18.56 billion. As per a recent update, the company has confirmed that it has completed the acquisitions of Planday and Tickstar on 01 April 2021. Planday is a workforce management platform that simplifies employee scheduling and allows businesses to forecast and manage its labour costs, whereas Tickstar is a technology business that helps organisations and its customers connect to a global e-invoicing network system.

H1FY21 Results Update: The company delivered decent performance during the period with a growth of ~21% in operating revenue to NZ$409.83 million in H1FY21, from NZ$338.65 million in the previous corresponding period. The gross profit grew by ~22% to NZ$351.16 million during the same period. There was a significant improvement in the EBITDA of the company by ~86% to NZ$120.76 million in H1FY21. The net profit after tax stood at NZ$34.48 million.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company continues to operate with a disciplined cost-management approach, which allows them to invest in new products and customer growth.

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: As per a recent update, XRO has announced the settlement of US$700 million zero-coupon convertible notes that were due in 2025. As per ASX, the stock of XRO is trading above its average 52-weeks’ levels of $65.160-$157.990. The stock of XRO gave a positive return of ~27.79% in the past six months and a positive return of ~88.3% in the past one year. On a technical analysis front, the stock of XRO has a support level of ~$121.441 and a resistance level of ~$136.406. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a correction of high single-digit (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the robust financial performance and an improvement in key business metrics. For the purpose, have taken peers such as Altium Limited (ASX: ALU), WiseTech Global Limited (ASX: WTC), Nuix Limited (ASX: NXL), to name a few. Considering the steep price movement in the past months, valuation, and the current trading levels, we are of the view that most of the positive factors have been discounted at the current juncture and we are of the opinion that the stock is overvalued. Hence, we suggest investors to wait for a better entry-levels and give an ‘Expensive’ rating on the stock at the current market price of $130.870, up by 3.430% as on April 01, 2021.

Megaport Limited

Board Update: Megaport Limited (ASX: MP1) is engaged in the provision of internet and interconnection services. The market capitalisation of the company as on 01 April 2021, stood at ~$1.73 billion. As per a recent update on 16 March 2021, MP1 has appointed Ms Glo Gordon and Mr Mike Klayko to the Board as Non-Executive Directors.

H1FY21 Performance Update: The company reported annualised revenue of ~$75 million as of 31 December 2020, compared to $67.8 million as of 30 June 2020. There was also an increase in the total number of customers to 2,043 as of 31 December 2020. It delivered impressive revenue growth of ~39% to $36.00 million in H1FY21, from $25.85 million in the previous corresponding period. The net loss of the company widened to $38.42 million during the period under consideration.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company’s Megaport Virtual Edge (MVE) platform has been deployed to 11 major metros and it plans to expand to 10 additional metros in H2FY21. It will focus on increasing its revenue going forward and plans to achieve Group EBITDA positive on exit run rate. The company plans to announce its Q3FY21 results on 22 April 2021 and FY21 results on 11 August 2021.

Key Risks: The company is exposed to the risk of breach in information security that can cause damage to its brand reputation and may lead to client loss. Moreover, it operates in a sector where there is a possibility of business disruption, and hence has to keep itself updated to the latest technological trends.

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: The company is at a comfortable financial position with a cash balance of $144.8 million as of 31 December 2020. As per ASX, the stock of MP1 is trading below its average 52-weeks’ levels of $9.360-$17.670. The stock of MP1 gave a positive return of ~3.07% in the past one week and a negative return of ~7.27% in the past one month. On a technical analysis front, the stock of MP1 has a support level of ~$10.676 and a resistance level of ~$12.222. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the impressive financial performance and increase in the number of ports. For the purpose, have taken peers such as NEXTDC Limited (ASX: NXT), Xero Limited (ASX: XRO), Iress Limited (ASX: IRE), to name a few. Considering the expected upside in valuation, current trading levels, decent increase in top-line, rise in customers, growth in number of ports and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $11.720, up by 5.680% as on April 01, 2021.

Nearmap Ltd

H1FY21 Performance Update: Nearmap Ltd (ASX: NEA) is in the business of providing of online aerial photomaps to customers. The market capitalisation of the company as on 01 April 2021, stood at ~$997.46 million. The company reported an annual contract value of $112.2 million in H1FY21. The statutory revenue grew by ~18% to $54.7 million, when compared to the previous corresponding period. There was a significant improvement in the EBITDA performance to $13.5 million in H1FY21 from $3.2 million in H1FY20, driven by increased scale in North America. It ended the period with a cash position of $129.3 million as of 31 December 2020.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: With the impressive performance of the company’s subscription business model, NEA expects to deliver FY21 ACV growth at the upper end of $120 million to $128 million ACV guidance range.

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: The company is focused on developing the next-generation aerial camera system- HyperCamera3. As per ASX, the stock of NEA is trading below its average 52-weeks’ levels of $1.070-$3.220. The stock of NEA gave a negative return of ~5.85% in the past three months and a positive return of ~76.37% in the past one year. On a technical analysis front, the stock of NEA has a support level of ~$2.01 and a resistance level of ~$2.247. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the decent financial performance and growth in annual contract value. For the purpose, have taken peers such as Altium Limited (ASX: ALU), Bravura Solutions Limited (ASX: BVS), Iress Limited (ASX: IRE), to name a few. Considering the expected upside in valuation, current trading levels, decent financial performance in H1FY21, comfortable cash position and the optimistic outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $2.090, up by 3.465% as on April 01, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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