Gentrack Group Limited

GTK Details

Key Takeaways for 1HFY21: Gentrack Group Limited (ASX: GTK) develops, integrates, and facilitates enterprise billing and customer management software solutions for the utility and airport industries. As of 1 June 2021, the market capitalisation of GTK stood at ~A$195.31 million. The company reported a revenue of NZ$51 million in 1HFY21, up by 0.7% on pcp. The marginal revenue uptick was due to the utilities billing software revenue increase and a decrease in the airports’ segment. Its EBITDA stood at NZ$7 million in 1HFY21, up by 63.2% YoY on a pcp basis. The business costs decreased by 5% YoY on account of various cost-saving initiatives.

GTK garnered NZ$7.11 million of net cash from operating activities for 1HFY21 due to cash savings and working capital improvements. GTK has announced not to pay the 1HFY21 interim dividend due to statutory loss and will review its decision at the year-end. GTK held a cash balance of NZ$24.96 million as of 31 March 2021.

Net Income & Revenue from 1HFY19-1HFY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of customer attrition and supply disruptions in its UK business. It is also exposed to the COVID-19 restrictions, higher provisions for and impairment of receivables, and severe impact on its airport business customers due to the pandemic.

Outlook: GTK anticipates FY21 revenues to be slightly higher than FY20 revenues of NZ$100.5 million. It expects EBITDA to be ~NZ$10 million for FY21, given R&D costs will be expensed. GTK predicts its net cash flows to be positive in FY21. It expects to build on NZ$16.8 million net cash reported as of 30th September 2020. It anticipates that 2HFY21 cash generation will remain neutral or improve. It has a growing pipeline of new logos in utilities in the UK and Australia. The company is committed to increase investment in the latest cloud technology solutions and further improve its operational effectiveness.

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 GTK gave a positive return of 34.91% in the past month and a positive return of 37.24% in the past three months. The stock is currently trading beyond the 52-weeks’ average price level of A$1.085-A$2.020. The stock of GTK has a support level of ~$1.829 and a resistance level of ~A$2.351. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of high single-digit downside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering its decision to suspend interim dividend decision for 1HFY21, statutory loss, and decrease in income from the airports segment in 1HFY21. For this purpose, we have taken peers like Reckon Limited (ASX: RKN), Adacel Technologies Limited (ASX: ADA), Skyfii Limited (ASX: SKF) and others. Considering the high trading levels, decent returns in the past month and in the past three months, associated risks to the Airport business due to the pandemic and higher provisions for receivables, we suggest investors book profit and give a ‘Sell’ rating on the stock at the current market price of A$1.990, up by 0.505% on 1 June 2021.

GTK Daily Technical Chart, Data Source: REFINITIV 

Laybuy Group Holdings Limited

LBY Details

Key Takeaway from FY21 Results: Laybuy Group Holdings Limited (ASX: LBY) is a provider of an integrated payment platform catering to different customers and merchants. LBY is engaged in the consumer financing business via a BNPL (buy now, pay later) model. As of 1 June 2021, the market capitalisation of LBY stood at ~$144.45 million. On 28 May 2021, LBY announced that Gary and Robyn Rohloff, one of the substantial shareholders in LBY hold 51.53 million fully paid ordinary shares with 25.68% voting rights as of 26 May 2021. Pioneer Capital III Nominees Limited, who also became a substantial shareholder in LBY, as of 3 February 2021, holds 22.16% voting rights as of 26 May 2021.

The company posted the highest revenue income of NZ$32.6 million, up by 138% YoY for FY21. It recorded a gross merchandise value of NZ$589 million, up by 159% YoY in FY21. The number of active customers increased by 87% and active merchants by 75% on a pcp basis. It held a cash balance of NZ$15.48 million as of 31 March 2021.

FY19-FY21 Revenue & Net Income; (Analysis by Kalkine Group)

Capital Raising Planned: The Group is planning to raise ~A$40 million via a share purchase plan (SPP) and an institutional placement to speed fast the growth in the UK. The issue price under both the SPP and institutional placement is $0.50 per share. It plans to complete the capital raise by the close of June 2021. LBY intends to deploy SPP and placement proceeds to fund its UK growth strategies, invest in marketing and sales professionals in the UK, technology, and products to develop its products and for general working capital needs. 

Key Dates under SPP: The SPP will close on 16 June 2021 (5 PM), and shares will be allotted on 25 June 2021.

(Source: Company Reports)

LBY plans to raise $5 million via SPP. It is optional to participate in the SPP. SPP is for eligible shareholders, i.e., to a shareholder registered in New Zealand/Australia on the record date.  The offer is also for the shareholders acting as the custodians on behalf of certain eligible beneficiaries as per conditions given in the booklet. An eligible shareholder under SPP can apply for up to $30,000 of new shares (SPP Shares) without paying any commissions or transaction fees. The new shares will rank equally with the currently issued shares.

Share Placement to Investors: It plans to raise A$35 million via an institutional placement to the investors at A$0.50 per share, a 26.5% discount to the last closing price on ASX on 17 May 2021. On 26 May 2021, LBY announced 26.16 million ordinary new shares issued at $0.50 per share under the first placement tranche raising $13.1 million capital. It will issue 43.83 million shares at A$0.50 per share to raise $21.9 million under the second tranche subject to shareholder approval on 10 June 2021. 

Key Risks: The company faces the risk of delay in seeking regulatory approvals, new customer acquisition, decreased consumer spending, and severe movement in foreign exchange prices. As the firm operates its payment platform, it is exposed to the risk of disruptions and technical glitches in transaction processing.   

Outlook: LBY is progressing well to exceed GMV of NZ$1 billion in FY22. It expects revenue to grow between 90%-100% in FY22 and NTM to continue to improve on FY21 on a 12-month rolling average basis.

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 LBY gave a negative return of 47.34% in the past three months and a negative return of 50.17% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.515-$2.300. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering the increase in net profits, and negative ROE in FY21. For this purpose, we have taken peers like Over the Wire Holdings Limited (ASX: OTW), Sezzle Inc (ASX: SZL), EML Payments Limited (ASX: EML) and others. Considering the current trading levels, a record increase in revenue in FY21, increase in merchants and customers, increased partnerships in May 2021, capital raised and plans to accelerate growth in the UK, target to exceed GMV of NZ$1 billion in FY22, valuation, and risks associated with the technological disruptions, decrease in consumer spending, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.695, down by 3.473% on 1 June 2021.

LBY 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.

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