Sezzle Inc.

SZL Details

H1FY21 Financial Highlights: Sezzle Inc. (ASX: SZL) provides credit services that facilitate payments solutions between consumers with merchants on online purchases and enables the customers to split the payment into four interest-free instalments in the US, Canada, India, and Europe. SZL was recently added to S&P/ASX 300 Index, effective from 20 September 2021. Key highlights of H1FY21 results are as follows:

• The company has recorded robust revenue growth (unaudited) of 159% to US$53.88 million in H1FY21, compared to US$20.78 million on a pcp basis. The acquisition of 40,274 active merchants during the period has supported the topline growth.
• In H1FY21, the company has reported an increase in operating expense to US$80.52 million vs US$27.05 million in H1FY20, impacted by the rise in provision for uncollectable accounts, marketing expenses and personnel expenses, etc.
• In addition, the company has posted a net loss after tax of US$30.41 million in H1FY21, up by 271% against a loss of US$8.18 million in H1FY20, impacted due to an increase in operating loss during the year.
• The company’s cash position stood at US$58.18 million as of 30 June 2021 vs US$84.28 million as of 31 December 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant effect on overall demand, particularly in the US market, due to COVID-19 disruption and still uncertainty in the near term.
• Change in Macro-economic Factors- The macro-economic conditions as unemployment, interest rates, economic recessions have increased the fear of bad debts that might continue to impact the company’s financials.

Outlook:

• The company expects its e-commerce platform to attract more merchants and offer Sezzle as a payment option. Moreover, it is focused on integrating with large retailers such as Target that might bring more consumers to use the Sezzle platform.
• It continues to maintain an efficient funding strategy with low-cost capital, which might allow it to scale up business and drive rapid growth going forward.
• The company is expanding its geographical footprint in the new markets, and currently, it is in the early stage of entering Brazil, which might drive growth in the near term.

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 SZL is trading below its average 52-weeks' levels of $4.930-$11.990. The stock of SZL gave a positive return of ~3.31% in the past one week and a negative return of ~22.10% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the uncertainty of the COVID-19 pandemic, increase in marketing expenses, economic crunch, fear of bad debt, etc. For the purpose of valuation, peers such as Link Administration Holdings Ltd (ASX: LNK), Tyro Payments Ltd (ASX: TYR), Splitit Ltd (ASX: SPT) have been considered. Considering the current trading levels, indicative upside in valuation, decent income growth, expanding international footprint, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy” rating on the stock at the current market price of $5.910, up by 1.03% as on 19 October 2021, 1:15 PM (GMT+10), Sydney, Eastern Australia.

SZL Daily Technical Chart, Data Source: REFINITIV

Compumedics Limited 

CMP Details

 FY21 Financial Result Highlights: Compumedics Limited (ASX: CMP) develops, manufactures and commercialises medical devices in Australia, the Asia Pacific, the Americas, Europe, and the Middle East.

• Decent Revenue Growth- The company has recorded revenue of $35.74 million in FY21, up 35% from $35.06 million in FY20.
• Strong Bottom line Growth- The company has incurred a net profit of $998k in FY21 against a loss of $5.83 million in FY20.
• Increase in Total Current Assets- It has reported an improvement in total current assets to $31.93 million as of 30 June 2021, driven by an increase in inventories, trade and other receivables.
• Liquidity Position- The company's cash position stood at $6.77 million as of 30 June 2021 vs $6.41 million as of 30 June 2020.

Borrowings Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company witnessed significant effect on the brain research business (Neuroscan) in the US as the universities struggled to work during the COVID-19 pandemic. The ongoing impact the COVID-19 pandemic could impact the company’s future operations.
• Regulatory Risk- To distribute its product, the company requires certain approvals, and any delays could impact its financial operations.

Outlook:

• The company is focused on strengthening its sales, marketing management in the US market. Further, it strategises to make gains in the Neurodiagnostic market globally, especially by commercialising directly in target markets such as the US, Australia, Germany, France.
• It expects the China-based sales to return to their pre-Covid level. However, it will not grow as strongly as it was in past years.
• The group continues to develop its MEG business and commercialise its Somfiit product with the international partner, which might drive growth in the near-term future.

Stock Recommendation:

The stock of CMP is trading below its average 52-weeks' levels of $0.355-$0.580. The stock of CMP gave a negative return of ~2.56% in the past one week and a negative return of ~17.39% in the past six months. On a TTM basis, the stock of CMP is trading at an EV/Sales multiple of 2.0x, lower than the industry median (Healthcare) of 14.2x, thus seems undervalued. Considering the current trading levels, decent financial performance, optimistic outlook, current trading level, valuation on TTM basis, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.380, as of 19 October 2021, 1:19 PM (GMT+10), Sydney, Eastern Australia.

CMP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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