QANTM Intellectual Property Limited

QIP Details

Change of Directors Interest: QANTM Intellectual Property Limited (ASX: QIP) is an intellectual property (IP) services business operating in Australia, New Zealand, Singapore and Malaysia. On 8 December 2021, one of the company’s directors, Mr. Craig Dower, acquired 285,087 FY21 Performance Rights and 285,087 FY22 Performance Rights which were issued under the Employee Incentive Plan.

2021 AGM Highlights: On 30 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that despite foreign currency head winds and restrictions associated with COVID-19 pandemic, the company reported decent FY21 results.

• Improved Revenue and Operating Cashflow: In FY21, the company’s total revenue grew by 2.1% to $119.1 million. The company’s operating cash flow strengthened over the year and was up 31.1% to $19.8 million.
• Reduced Net Debt: As at 30 June 2021, the company has net debt of $16.2 million, down from $17.4 million as at 30 June 2020.
• Dividend Update: For FY21, the company paid dividend of 7.4 cents per share, up 4.2% on the previous year.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company is exposed to the risks related to COVID-19 pandemic and its associated restrictions as it could impact the company’s business operations.
• Foreign Currency Risk: The company is exposed to the risks related to the fluctuations in the foreign currency exchange rates as it could impact its financials.

Outlook: The company is making solid progress on its M&A program, with the acquisition of Sortify completed and other opportunities in train. Looking ahead, the company is focused on organically growing its existing businesses, expanding footprint into Asia and developing adjacent service lines and technology related plays.

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

Stock Recommendation: Over the last six months, the stock has provided a positive return of ~20.51% and in the last three months, it has provided a return of ~+19.49%. The stock has recently touched its 52-week high price of $0.145. The stock has a support level of ~$1.24 and resistance level of $1.67. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of mid-single-digit (in % terms). The company can trade at a slight discount to its peers considering the uncertainty surrounding the COVID-19 pandemic and volatility in foreign currency risk. For the valuation purpose, peers such as IPH Ltd (ASX: IPH), Countplus Ltd (ASX: CUP), Aerometrex Ltd (ASX: AMX), etc. have been considered. Considering the company’s decent stock performance in the last few months, current trading level, indicative downside in valuation and key risks associated with the business, we suggest investors to book profit and give a “Sell” rating on the stock at the closing market price of $1.410, up by ~0.714% as on 6 January 2022.

QIP Daily Technical Chart, Data Source: REFINITIV  

Service Stream Limited

SSM Details

Change in Substantial Holder: Service Stream Limited (ASX: SSM) provides end-to-end asset life-cycle services to utility and telecommunications asset operators, owners, and regulators. On 30 November 2021, one of the company’s substantial shareholders, Allan Gray Australia Pty Ltd, increased its holding in the company from 6.72% to 7.9%.  Allan Gray Australia Pty Ltd now holds ~48,663,057 ordinary shares of the company.

Completed Acquisition of Lendlease Services: On 1 November 2021, the company announced that it has completed the acquisition of Lendlease Services Pty Ltd (Lendlease Services), which supports the transformation of SSM into a diverse, multi-network essential service provider operating across the growing infrastructure services sector.

2021 AGM Highlights: On 20 October 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that despite the challenges posed by the COVID-19 crisis, the demand for the company’s services has remained strong in FY21.

• FY21 Results Update: In FY21, the company’s revenue declined by 13.4% YoY to $804.4 million, impacted by lower Telco segment revenue and reduced activation and assurance volumes. EBITDA from operations stood at $80.1 million in FY21, down by 25.9% on FY20.
• Trading Update: The company is witnessing stronger Telecommunications volumes, which are offsetting lower contribution across Utilities primarily due to COVID-19 related challenges.
• Dividend Update: The company has not declared final FY21 dividend to assist with funding the Lendlease Services acquisition.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks of COVID-19 pandemic as it could cause increased restriction of workforce movement, and reduction in demand from the company’s customers, which may impact the company’s operations. The rate of adoption of new technology by the company’s customers, such as 5G technology, can also provide variability against expected future earnings.

Outlook: Due to the acquisition of Lendlease Services, the company expects its FY22PF revenue to be around ~$1.7 billion and FY22PF EBITDA from Operations of approximately ~$120-125 million. The successful integration of Lendlease Services into the SSM is expected to assist in delivering longer term growth and value to SSM shareholders.

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

Stock Recommendation: Over the last six months, the stock has been corrected by ~15.43% and is trading lower than the average 52-week price level band of $0.735 - $1.905, offering a decent opportunity for accumulation. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding COVID-19 pandemic and associated restrictions. For the valuation, peers such as CIMIC Group Ltd (ASX: CIM), GenusPlus Group Ltd (ASX: GNP), Monadelphous Group Ltd (ASX: MND), have been considered. Considering the recently completed acquisition of Lendlease Services Pty Ltd, modest outlook, current trading level, indicative upside in valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.7775, as on 6 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SSM 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.

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