Gentrack Group Limited

GTK Details

FY20 Performance Update: Gentrack Group Limited (ASX: GTK) is engaged in the development and integration of enterprise billing/customer management software solutions for the utility & airport industries. The market capitalisation of the company as on 25 February 2021, stood at ~$135.63 million. During FY20, the company reported revenues of NZ$100.5 million and an EBITDA of NZ$12.1 million. There was an improvement in the net cash by 263% to NZ$16.8 in FY20, compared to the previous corresponding year. The company has experienced committed monthly recurring revenue (CMRR) growth of 17.5% to NZ$47.1 in FY20, compared to FY19 in the utility segment. It was driven by new business wins in the UK and Australia and an increase in meter points for existing UK customers.

The Non-recurring revenues were down during the period due to the uncertainty in the economic environment that has led customers to delay committing for large transformational projects. The company has witnessed a growth of 8.8% in the annual recurring revenue to NZ$10.4 million in FY20 compared to FY19, in the airport segment. The annual recurring revenue formed 56% of total airport revenues in FY20. Overall, GTK reported revenues of NZ$18.7 million from the airport business in FY20.

Utilities Revenue Performance in FY20 (Source: Company Reports)

Outlook: The company expects FY21 revenues to be close or slight increase to FY20 revenues. It anticipates an EBITDA of ~NZ$5 million during the period, with incremental R&D costs of ~NZ$3 million per quarter from Q3FY21.

Stock Recommendation:  GTK expects to be net cash flow positive in FY21.  As per ASX, the stock of GTK is trading above its average 52-weeks’ levels of $0.770-$2.060.  The stock of GTK gave a positive return of ~6.56% in the past three months and a positive return of ~4.28% in the past six months. On a technical analysis front, the stock of GTK has a support level of ~$1.197 and a resistance level of ~$1.564. Considering the current trading levels, resilient performance in utilities recurring revenues and improvement in the cash position, we recommend a 'Hold' rating on the stock at the current market price of $1.460, up by 6.181% as on 25 February 2021.

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

Etherstack PLC

ESK Details

Deal with Samsung to Aid Revenues: Etherstack PLC (ASX: ESK) is a wireless technology company that manufactures, develops and licenses radio technologies for wireless equipment manufacturers. The market capitalisation of the company as on 25 February 2021 stood at ~$81.63 million. As per a recent update, the company has signed a US$1.2 million deal, that will provide Samsung license to its existing technology for integration of the joint solution focussed at the telecommunications carrier market. The transaction will aid ESK with additional license revenue comfort.

FY20 Results Update: The company delivered resilient financial performance during the year with a revenue of US$4.7 million and EBITDA stood at US$1.1 million. Recurring revenues comprising of support and royalty revenue, grew by ~27% in FY20, aided by long-term support contracts and new royalty agreements. There was an improvement in the underlying NPAT to US$83,000, compared to a loss of US$871,000 in FY19. ESK has witnessed an uptrend in the net operating cash inflow at US$1.7 million in FY20. The company has entered into a $4.1 million contract with the Australian Department of Defence during the year. It also won and provided a material deal to supply digital radio network equipment to a major company in Western Australia. Despite the impact of COVID-19 in the business environment, the company successfully delivered and commissioned a digital radio network for the Royal Canadian Mounted Police. It also successfully raised a capital of $5 million in December 2020, further strengthening its balance sheet.

FY20 Performance (Source: Company Reports)

Outlook: The company believes that the FY21 revenue and EBITDA will outperform the FY20 numbers, based on the contract wins and strategic partnerships announced during FY20.

Stock Recommendation: On 11 February 2021, the company has signed a subcontract with EOS Defence Systems Pty Ltd to supply services to a project with the Australian Department of Defence. The services to be provided are valued at ~$500,000 and the company expects to realise the amount fully in FY21. As per ASX, the stock of ESK is trading below its average 52-weeks’ levels of $0.120-$3.700.  The stock of ESK gave a positive return of ~364.28% in the past nine months and a negative return of ~3.70% in the past six months. On a technical analysis front, the stock of ESK has a support level of ~$0.599 and a resistance level of ~$0.727. Considering the current trading levels, the recent signing of deals, improved cash flow performance and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.650, up by 3.174% as on 25 February 2021.

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

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