Appen Limited

APX Details

Managerial Changes: Appen Limited (ASX: APX) is a provider of quality data solutions and services for AI (artificial intelligence) and machine learning applications for technology, financial services, healthcare, automotive, retail companies, and government bodies. Recently, APX expanded its portfolio in the location intelligence market with the acquisition of Quadrant Global Pte Limited. On 28 October 2021, Mr. Christopher Vonwiller retired as the Director & Chair of APX, and Mr. Richard Freudenstein replaced him as the Chair of the company.

1HFY21 Results:

• The revenue from the New Markets division grew by ~31.5% YoY to ~US$47.8 million driven by new Enterprise customer wins, projects, and growth in China during 1HFY21. The division contributed ~24% of revenue in 1HFY21 vs ~18% in 1HFY20.
• The company acquired 74 new customers in 1HFY21 and had ~320 active customers across geographies and industries.
• The company reported cash conversion of ~101% of underlying EBITDA in 1HFY21.
• APX invested ~10.8% of the revenue earned during 1HFY21 in product development to expand the market reach and new opportunities.
• The company held ~$65.96 million cash and nil borrowings as of 30 June 2021.

Cash & Cash Equivalents Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological changes, geopolitical changes, COVID-19 uncertainties, and integration synergies from the recent acquisitions.

Outlook:

• The company provides revised Underlying EBITDA guidance to ~$81-$88 million, down by ~$2 million due to planned investment in Quadrant. APX expects the FY21 underlying EBITDA to be at the lower end of the range, owing to ad-associated project impacts.
• APX had ~$360 million revenue and orders-in-hand for delivery on a YTD21 basis (~10% up on PCP) as of August 2021 well-aided by a robust order book and expected skewed 2HFY21 customers’ delivery schedule.
• APX expects mid-high single digit revenue growth for its Global Services’ division and ~25% for its New Markets division in FY21.
• The company expects gross margin to improve and expenses to increase moderately in 2HFY21. APX anticipates ~$15 million restructure-related cost savings in FY22 and plans to reinvest in product development.
  

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 APX gave a positive return of ~26.70% in the past month and a negative return of ~9.78% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.360 - $36.500. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering the impact on Global Services’ division in 1HFY21, narrowed guidance for Underlying EBITDA, expected moderate expense growth in FY21, and the impact of ad-related projects, etc. For this purpose of valuation, a few peers like Data#3 Limited (ASX: DTL), rhipe Limited (ASX: RHP), Over the Wire Holdings Limited (ASX: OTW) have been considered. Considering the current trading levels, growth of new markets’ division, acquisition of Quadrant in 1HFY21, expected cost savings & improved gross margins in FY22, order book in hand, deleveraged balance sheet, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $11.070, as of 3 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

APX Daily Technical Chart, Data Source: REFINITIV  

LiveTiles Limited

LVT Details

Q1FY22 (Ending 30 September 2021) Highlights: LiveTiles Limited (ASX: LVT) is involved in the development and sale of business software in Australia and overseas. Following are the key financial and operating highlights of LVT:

• The company reported ~$64.5 million Annualised Recurring Revenue (ARR), up by ~13% YoY in Q1FY22. On a constant currency basis, ARR stood at ~$64.9 million for Q1FY22.
• LVT signed new customers across regions – the US, UK, Australia, Europe, and delivered multiple customer projects.
• APX recorded ~$14.6 million cash receipts, an increase of 21% up on pcp in Q1FY22. The net operating cash outflows (excluding one-time items) improved to ~$0.5 million, up by ~58% on Q4FY21.
• During Q1FY22, LVT draw down a ~$6 million loan facility obtained from OneVentures and held ~$20.9 million cash as of 30 September 2021.
• Recently, LVT acquired ~19.9% minority stake for ~$900,000 in BrainPac, a Cognitive AI development company to solidify its position in the Employee Experience (EX) market.
• On 30 September 2021, LVT organised a global “Lets Connect with Simon Sinek”, a global online Employee Experience (EX) event attended by ~4,300 people. Over 20K online attendees viewed the event website and event materials online leading to ~500 qualified leads across APAC, EMEA, and the US.

ARR Growth Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces technological changes, lower spending from clients, COVID-19 volatility, regulatory risk, and forex rate sensitivity.

Outlook:

• LVT will conduct a virtual AGM (Annual General Meeting) on 30 November 2021.
• Recently, LVT secured ~$6 million debt to invest in product innovation, grow R&D partnerships, and explore strategic investment avenues for growth. The company plans to seek another ~$4 million debt via the issuance of convertible notes post shareholder approval during the AGM.
• The company continues to strengthen its position in the EX-market via recent investment in BrainPac and pursue qualified leads from the online event.

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 LVT gave a negative return of ~24.99% in the past three months and a negative return of ~31.42% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.115 - $0.305. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its negative cash flows, and the continuing trend of negative net margins in FY21, etc. For this purpose of valuation, few peers like Over the Wire Holdings Limited (ASX: OTW), ReadCloud Limited (ASX: RCL), Integrated Research Limited (ASX: IRI), and others have been considered. Considering the current trading levels, ARR & cash receipts growth in Q1FY22, new customer signings across regions, plans for investment in product development, partnership synergies in FY21, valuation, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.120 as of 3 November 2021.

LVT 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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