Splitit Payments Limited

SPT Details

Issue of Warrants & Shares:  Splitit Payments Limited (ASX: SPT) offers payment solutions enabling businesses and merchants to split the purchase into interest-free instalments with an existing debit or credit card. On 29 July 2021, SPT issued 4.33 million of the second tranche of warrants out of 13.0 million warrants at a strike price of $1.30 to Goldman Sachs Bank, USA due to the utilisation of the funding facility (warrants). The warrants will vest upon issuance and expire on 29 July 2026. Besides, SPT has issued and allotted 10,833 ordinary shares due to the exercise of 10,833 unquoted options under an Employee Share Incentive Plan.

Q2FY21 Financial Highlights:

• Growth in Revenue: SPT reported US$2.8 million of revenue in Q2FY21, up by 18% YoY.
• Growth in Merchant Sales Volume (MSV): The company posted a record quarter with MSV of US$90.3 million, up by 38% YoY, taking the 1HFY21 MSV to US$172.4 million.
• Increase in Merchants & Shoppers: The number of merchants has grown to 2.8K, up by 167% YoY, and shoppers increased to 566K, up by 66K in Q2FY21.
• New Partnerships: SPT added several new merchants and partnerships consisting of Gem Shopping Network, HP.com, La-Z-Boy Furniture Galleries, and tabby.
• Launch of Splitit InStore: SPT introduced Splitit InStore to offer an omnichannel merchant solution and extends the total addressable market considerably.
• Debt Repayment: The company expected to pay US$25 million in July on higher cost legacy facilities and will reduce the overall cost of funds by ~50% upon the usage of the Goldman Sachs warehouse further.
• Net Cash Outflows: SPT used US$5.2 million of net cash used in operating activities in Q2FY21.
• Liquidity Position: SPT held cash and undrawn loan facilities worth US$178 million (US$66 million cash) as of 30 June 2021.

Revenue & MSV Growth Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Financial Risks: The company faces various financial risks, including liquidity and credit risk, forex fluctuations, and changes in interest rates.
• COVID-19 Impact: SPT witnessed delays in multiple merchant integrations, change in consumer spending due to the impact of COVID-19.

Outlook:

• The company expects accelerated merchant acquisition in 2HFY21 and further. The recently added merchants will come online in Q3FY21.
• SPT has a robust pipeline of major brands, plus it expects Splitit InStore and Splitit Plus initiatives to drive greater traction as the products penetrate further.

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

Source: 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 stock of SPT gave a negative return of ~11.90% in the past three months and a negative return of ~59.04% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.455 - $1.930. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average, considering the growth in revenue & MSV in Q2FY21, launch of new services expected to drive revenue growth and a robust pipeline of brands for 2HFY21. For the purpose of valuation, peers like Pushpay Holdings Limited (ASX: PPH), SmartPay Holdings Limited (ASX: SPY), and Afterpay Limited (ASX: APT) have been considered. Considering the low trading levels, increase in revenue, MSV & new partnerships in Q2FY21, decent outlook and growth of brands pipeline in 2HFY21, valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the market price of $0.555, as on 17 August 2021, 2:43 PM (GMT+10), Sydney, Eastern Australia).

SPT Daily Technical Chart, Data Source: REFINITIV 

Class Limited

CL1 Details

Issue of Shares: Class Limited (ASX: CL1) develops and distributes Class Super and Class Portfolio, both cloud-based accounting softwares for reporting investment portfolios and funds’ administration. CL1 recently proposed to issue 722,223 shares on 1 September 2021 for $1.3 million (consideration). CL1 has issued shares in part consideration for the acquisition of Topdocs Edge Pty Limited and Topdocs Pty Limited.

Dividend Distribution: On 17 August 2021, CL1 announced a distribution of $0.025 with 23 September 2021 as the payment date.

FY21 Key Takeaways:

• Revenue Growth: CL1 posted an increase of 25% YoY in its operating revenue and other income to $54.94 million in FY21 due to the growth of software business.
• Underlying EBITDA: The Underlying EBITDA rose by 15% YoY to $21.90 million in FY21.
• Launch of Class Trust: CL1 launched Class Trust earlier than its planned schedule and received positive customer feedback to date.
• Customer Base: CL1 has accelerated its technology investment and has now more than 7,700 distinct customers and product relationships with 81 top accounting companies in Australia.
• Acquisitions’ Growth: CL1 has completed the business integration of the Smartcorp and Reckon Docs acquisitions. CL1 had recently declared the acquisition of Top Docs to enhance its market position.
• Liquidity Position: CL1 held $10.36 million cash and cash equivalents as of 30 June 2021.

Revenue & NPAT from FY17-FY21; (Analysis by Kalkine Group)

Key Risks:

• Integration Risk: CL1 is growing rapidly via acquisitions and has acquired four businesses in the last two years for $54.4 million. The company faces the risk of synergies and strategic gains as estimated at the time of the deal.
• Loss of Major Customers: The company faces the loss of major accounts impacting the sale and growth of its software.

Outlook:

• CL1 targets a revenue of $65 million (up by 18% YoY) and an EBITDA of $25 million (up by 19% YoY) in FY22. The company will pay a final cash dividend of 2.5 cents per share on 23 September 2021.
• CL1 expects the acquisitions will deliver more than ~$20 million in revenue from the new vertical in FY22.
• The company intends to scale up Class Trust via targeted cross-sell/up-sell to its large and increasing customer base and continuing technology improvements to establish the platform.
• CL1 will re-examine its 1HFY22 capital allocation strategy for dividend distribution, total shareholder returns optimisation, and surplus retention.

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

Source: 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 stock of CL1 gave a positive return of ~7.87% in the past three months and a negative return of ~19.45% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.405 - $2.320. The stock has a support level of $1.670 and a resistance level of $1.989. The stock has been valued using an Enterprise Value to Sales multiple-based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium than its peers’ median, considering its increase in operating, growth in accounts of existing products in FY21, acquisition gains and revenue growth guidance for FY22. For the purpose of valuation, peers like Infomedia Limited (ASX: IFM), Linius Technologies Limited (ASX: LNU), Bigtincan Holdings Limited (ASX: BTH), have been considered. Considering the current trading levels, increase in operating revenue, the launch of the new product, advantages from the recent acquisitions and expansion, revenue and EBITDA forecast for FY22, growth of Class Trust and further acquisitions, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $1.780, down by ~1.112% as on 17 August 2021.

CL1 Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.