Stocks’ Details
 

TechnologyOne Limited

 
Ten Consecutive Years of Record Profit: TechnologyOne Limited (ASX: TNE) is in the business of development, marketing, sales, implementation and support of fully integrated enterprise business software solutions. The company has recently announced its full-year results for the year ended 30 September 2019, wherein the company posted a yoy growth of 13% in top-line to $286.44 million. The company stated that growth in the business was mainly driven by the continued performance of the TechnologyOne SaaS ERP solution. TNE also declared a dividend of 8.78 cents per share (60% franked) on ordinary fully paid shares, which is to be paid on December 13, 2019. This takes the total dividend for the year to 11.93 cents per share, an increase of 8% on the prior year, representing a pay-out ratio of 65% for the full year.

 

Financial Performance (Source: Company Reports)
 
What to Expect: TNE expects a decent growth in FY20 profit and SaaS ARR (Annual Recurring Revenue). Diversified revenue streams and strong customer base are major expected drivers for growth in the coming years. It also expects that Total Annual Recurring Revenue will increase to over $500 million in FY24. The company further anticipates profit margin to improve to 35% in the next few years, owing to significant economies of scale from single instance global SaaS ERP solution.
 
Stock Recommendation: As per the ASX, the stock of TNE gave a return of 29.75% on YTD basis and a return of 8.73% in the past three months. During the year, EBITDA margin of the company stands at 28.5% in comparison to the industry median of 25.7%.ROE (Return on Equity) stood at 63.4%, higher than the industry median of 12.6%. A higher RoE reflects that the company has been delivering decent returns to its shareholders. In terms of valuation, the stock is trading at an EV/Sales multiple of 8.8x, higher than the industry median (Technology) of 4.9x on TTM basis. Thus, we are of the view that most of the positives are factored in at current juncture. Hence, we recommend an “Expensive” rating on the stock at the current market price of $8.720 per share, up by 11.083% on November 20, 2019, owing to the release of FY19 results.

LiveTiles Limited

Acquisition of Intranet Provider:LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software in Australia and overseas. The company has recently announced that it has signed an agreement to acquire CYCL AG, the leading Switzerland-based intelligent intranet software provider, for an upfront purchase consideration of $19.0m ($6.3m cash and $12.6m stock), representing an attractive EV / total revenue multiple of 1.3x.
Strong Growth in ARR: For Q1 FY20, annualised recurring revenue (ARR) of the company went up by 131% on pcp to $42.9 million with strong growth of around 37% (YoY) in average ARR per customer. This was mainly driven by a higher proportion of new enterprise customers, product cross-sell/ bundling and increased penetration of existing customers. During the first quarter, cash flow exhibited a substantial improvement with continued growth in customer cash receipts, which rose by 252% on pcp to $8.5 million.


ARR Growth (Source: Company Reports)

Stock Recommendation: LiveTiles Limited expects to deliver another year of strong customer and revenue growth in FY20 because of the continued deployment towards products, partners as well as sales and marketing channels. The company is targeting to organically grow ARR to atleast $100 million by 30 June 2021. The stock is inclined towards its 52-week low, hence, proffering a decent opportunity for accumulation. During the span of FY15 to FY19, revenue of the company witnessed a CAGR of 197.8%. Thus, considering positive outlook, trading levels, decent ARR target by June 2021, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.310, down by 4.615% on November 20, 2019, taking cues from the release in relation to the agreement to acquire CYCL AG.
 

Praemium Limited

Record Funds Under Management: Praemium Limited (ASX: PPS) is a global leader in the provision of technology platforms for managed accounts, investment administration and financial planning.In the recently held AGM, the top management of the company addressed its shareholders and stated that the company has achieved decent progress across a number of growth-focused initiatives. During the year, NPAT (net profit after tax) increased by 80% to $2.5 million from $1.4 million. 

As at September 2019, Funds under Administration (FUA) stood at more than $20 billion, up by 24% for the first time.The company also reported a record quarterly gross inflows of $1 billion across Australia and UK/International markets.


Financial Performance (Source: Company Reports)

What to Expect: The company anticipates the specialist platforms market share to grow from 5% to 12% in 5 years in Australia and expects that over-concentration of platform tech from 2-3 providers could lead to an innovation stalemate in the UK.

Stock Recommendation: As per the ASX, stock of PPS gave a return of 54.67% in the past six months and a return of 2.65% in the last one month. In the time span from FY15 to FY19, the company witnessed a CAGR of 18.73% in revenue. EBITDA margin and ROE of the company stood at 18.2% and 11.6%, showing an improvement in the previous year’s 15.9% and 7.6%, respectively. In terms of valuation, the stock of the company is trading at a P/E multiple of 92.06x.  On the backdrop of high returns, improving margins and decent financial performance and respectable CAGR growth, we recommend to “Hold” the stock at the current market price of $0.605, up by 4.31% on November 20, 2019, owing to the results of AGM 2019.
 

Integrated Research Limited

Record Revenue and Profit: Integrated Research Limited (ASX: IRI) is in the business of designing, development, implementation and sale of systems and applications management computer software. In the recently held AGM of the company, the top management stated that it has surpassed milestones of record revenue and profit. During the year, revenue of the company went up by 11% to $100.8 million, underpinned by strong performance in new licence sales, which increased by 19% to $62.8 million. It also reported NPAT of $21.9 million, up by 14%. The company declared a fully franked final dividend of 3.75 cents, bringing the total dividend to 7.25 cents compared to the prior year of 6.5 cents per share.


Annual NPAT Performance (Source: Company Reports)

What to Expect: The company is focusing on new customer acquisition and is investing in a new cloud-based platform that will enable complementary expansion of its solutions to enterprise customers as they typically embrace an environment of on-premise, hybrid and cloud solutions. The first of these cloud-based solutions is expected to be delivered in 2H FY20.  

Stock Recommendation: The stock of IRI generated a return of 18.9% in the past six months and 3.42% in the last one month. During the time span of FY15 to FY19, revenue of the company witnessed a CAGR of 9.43%. Net margin of the company stands at 21.7%, higher than the industry median of 15.1%. This indicates that it is managing its costs well and is able to convert its top-line into bottom-line. ROE of the company stands at 34.2% in comparison to 12.6%. Considering the higher net margin, ROE, focus towards new customer acquisition, we recommend to “Hold” the stock at the current market price of $3.060, up by 1.325% on November 20, 2019. 
 

Splitit Payments Ltd

Chairman’s Address to Shareholders:Splitit Payments Ltd (ASX: SPT) provides a credit card-based instalment solution to businesses and merchants. The market capitalisation of the company stood at A$242.95 Mn as on 20^th November 2019. The Chairman of the company recently addressed the shareholders and stated that 2019 has been a very strong foundational year for the company with many important achievements beginning with its successful listing on the ASX in late January. Chairman added that at listing SPT raised A$12 Mn and then followed this in May with an A$30 Mn secondary offering. Splitit currently has a broad register of retail and institutional equity investors, as a result of its capital raisings. In another update, the company reported its results for the quarter ended 30^th September 2019, wherein it reported strong growth throughout all key operational performance metrics with total merchants reaching at 624, reflecting the growth of 97% on pcp. The company is well financed to execute growth ambitions, with US$16.1 Mn in cash as at 30^th September 2019, in combination with US$4.5 Mn in future repayments from merchants.


Performance Metrics (Source: Company Reports)

What to Expect:The company anticipates continuing to grow unique customers and transaction volumes, which would support growth in merchant fees in Q4 2019 and beyond. It added that the merchant feedback continues to be very supportive with a strong recognition of its differentiated solution, as the only Buy Now Pay Later solution which could be implemented throughout the established and large credit card network.

Stock Recommendation:Gross margin of the company stood at 90.4% in 1H FY19 in comparison to the industry median of 75.7%. Current ratio of SPT stood at 17.22x in 1H FY19 against the industry median of 2.14x. This implies that the company is in a decent position to address its short-term obligations as compared to the broader industry. On the stock’s performance front, it delivered a return of 79.55% in the span of three months. While in the time period of one month and six months, the stock generated negative returns of 8.14% and 15.05%. As per the ASX, SPT is trading marginally lower from its 52-week low-high average. Therefore, considering the current trading levels, decent position of the margins and expectations of growth in merchant fees, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.790 per share on 20^th November 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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