Isentia Group Limited 

ISD Details

Entered a Scheme Implementation Deed: Isentia Group Limited (ASX: ISD) is engaged in the provision of media intelligence services to public and private sector clients through media database, media release distribution, media monitoring, social media monitoring, media analysis and content marketing. ISD has announced regarding entering a Scheme Implementation Deed (SID) with Access Intelligence Plc. Under the SID, Access Intelligence will acquire 100% of the share capital in ISD for $0.175 per share in cash. ISD has $35mn of equity value and $32mn of net debt balance as on 31 May 2021, which indicates an Enterprise Value of $67mn. The scheme is subject to limited conditions including material adverse change condition, court approval and approval by the shareholders of Isentia and Access Intelligence. The company is expecting shareholders to approve the SID as the company is offering a cash of $0.175 to its shareholders, indicating a premium over its current market price. 

1HFY21 Financial Highlights: ISD has reported a decline in its revenue to $42.85mn in 1HFY21 against $56.54mn in 1HFY20. The company’s media intelligence revenue declined by 19.8% (Excluding North Asia Revenue) owing to a cyber incident in 1HFY21. The company has incurred a loss of $5.87mn in 1HFY21. The cash balance has been declined to $9.66mn as on 31 December 2020 against $16.11mn as on 30 June 2020. The company has reported a decline in its total liabilities to $77.30mn as on 31 December 2020 against $84.41mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign exchange prices. Thus, any adverse movement in foreign exchange prices may impact the financials of the company. In addition, the company holds interest bearing liabilities. Therefore, any significant change in interest rates may impact the financials of the company. 

Outlook: ISD has incurred an additional remediation costs leading to impact FY21 EBIT in the range of $7.0-$8.0mn. The company continues with their strategic transformation program and remains on track to offer latest product features to its customers. Other projects have been delayed by 4-6 months and expected to be delivered in 4QFY21 and 1QFY22. 

Valuation Methodology: EV/EBITDA based Relative Valuation Method (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 ISD gave a return of ~113.33% in the last one month and a return of ~60.0% in the last three months. The current market capitalisation of ISD stands at ~$13.74mn as of 15 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.066~$0.250. On the technical analysis front, the stock has a support level of ~$0.152 and a resistance of ~$0.228. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering a decline in its top line in 1HFY21 and a decline in its cash balance as on 31 December 2020. For this purpose, we have taken peers Reckon Ltd (ASX: RKN), Adacel Technologies Ltd (ASX: ADA), Readytech Holdings Ltd (ASX: RDY). Considering the company has incurred a loss with a decline in its top line in 1HFY21, steep price movement in the past few months, current trading levels, and valuation, we suggest investors to book profits and recommend a “Sell” rating on the stock at the current market price of $0.17, (as on June 15, 2021, 14.00 PM (GMT+10), Sydney, Eastern Australia). 

ISD Daily Technical Chart, Data Source: REFINITIV 

Adslot Ltd. 

ADS Details

Agreement with GroupM: Adslot Ltd. (ASX: ADS) is engaged in providing trading technology, services and adserving. The company's trading technology includes Adslot and Symphony. ADS has announced regarding signing a marketplace agreement with GroupM. Under the agreement, ADS will provide a white-labelled instance of the Adslot Media platform to GroupM. The platform will enable buyers to buy inventory directly with the Adslot’s list of premium publishers.  

3QFY21 Updates: ADS has reported an increase of 44% QoQ in the value of media traded to $10.1mn in 3QFY21. Moreover, ADS has reported a significant improvement in the performance of the US market, with trading activity accounting for 44% of the total value of media traded. During the quarter, the company has signed an agreement with Flowershop Media for the Cannabis Industry. Furthermore, the company has attained repeat trading with Orion. In addition, the company has improved the sales pipeline in both the US and UK markets. 

1HFY21 Financial Highlights: ADS has reported a decline in revenue to $5.01mn in 1HFY21 against $5.34mn in 1HFY20 due to Covid-19 impacts and lower license fees. The company has incurred a loss of $2.83mn in 1HFY21. ADS has seen an increase in its cash balance to $7.47mn as on 31 December 2020 against $6.16mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign exchange prices. Thus, any adverse movement in foreign exchange prices may impact the financials of the company. In addition, the company is exposed to Covid-19 related risks. Any such situation may impact the business of the company. 

Outlook: The company expects robust Symphony fees in the 2HFY21 considering the impact of the new GroupM arrangements. The company expects an increase in integrated deployments in Europe in the 2 HFY21 from the Symphony-Marathon partnership. The partnership is expected to offer opportunities in the European markets for existing KSD clients and new clients for both organisations, going forward.

Stock Recommendation: The stock of ADS gave a return of ~3.84% in the last one month and a return of ~-3.57% in the last three months. The current market capitalisation of ADS stands at ~$53.51mn as of 15 June 2021. The stock is currently trading slightly above the average 52-weeks’ price level range of ~$0.017~$0.036. On a TTM basis, the stock of ADS is trading at an EV/Sales multiple of 4.7x lower than the industry (Software & IT Services) median of 6.2x, thus seems under-valued. Considering the company has signed an agreement with GroupM to enhance revenues, increase in cash balance as on 31 December 2020, expectation of higher Symphony fees in 2HFY21, improvement in trading performance in the US markets, associated business risks, and valuation on TTM basis, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.027, as on 15 June 2021.

ADS 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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