Southern Cross Media Group Limited

SXL Details

Announcement of Buy-Back: Southern Cross Media Group Limited (ASX: SXL) is engaged in the creation of audio content for distribution on broadcast (AM, FM and DAB radio) and digital networks. The company has recently announced an on-market share buy-back of up to $40 million. It would buy back up to 10% of the issued capital in any 12-month period without shareholder approval. The company would fund the buy-back from existing cash reserves and debt facilities.

Insights of 1HFY22: During 1HFY22, the company experienced marginal growth in revenue. The audio revenue growth was backed by the improving broadcast radio markets and accelerating growth in digital audio markets.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: SXL is exposed to risks arising from the rising market share of its peers, which may create competitive pressure. In addition, the business could also be affected by a shift in new technology.

Outlook: The company believes that the digital audio market will continue to expand, and it is well-positioned to take benefit from this growing segment. Looking forward, the company would be focused on quality of earnings by driving strong cash conversion. In addition, it would continue to invest in its digital audio strategy to grow audiences and revenue opportunities.

Valuation Methodology: P/E 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 SXL is currently trading below its 52-week low-high average of $1.565 - $2.390, respectively. The stock has been corrected by ~11.50% in the past three months. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 Led uncertainties and fall in earnings, etc.  For the purpose of valuation, peers such as Nine Entertainment Co Holdings Ltd (ASX: NEC), HT&E Ltd (ASX: HT1), and Ooh!Media Ltd (ASX: OML) have been considered. Considering the expected upside in valuation, improving audio revenue, buy back of shares, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $1.670, down by ~1.184% as on 06 April 2022.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

SXL Daily Technical Chart, Data Source: REFINITIV 

Spirit Technology Solutions Ltd

ST1 Details

Appointment of Director: Spirit Technology Solutions Ltd (ASX: ST1) is engaged in the provisioning of IT&T services, which include Telecommunication services, Cloud services, Managed IT services and Cyber Security services. Recently, the company has appointed Julian Haber as an Executive Director, effective on 1 April 2022.

1HFY22 Highlights: During 1HFY22, the company witnessed decent growth in financials and closed the half-year with $17.4 million of cash and debt through its bank facility

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: ST1’s operational and financial performance could be affected by the risk arising from the failure in maintaining cybersecurity. In addition, the business is also exposed to risks arising from the loss of customers.

Outlook:  ST1 is optimistic that record sales in November 2021 (TCV: $12.2 million) and December 2021 (TCV: $13.6 million) may support revenue growth in 2HFY22 and beyond.  The company anticipates 2HFY22 revenue to be ~$75 million, and revenue for FY22 is likely to be ~$140 million.

Valuation Methodology: P/E 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 ST1 is currently trading near its 52-week low level of 0.140, offering a decent opportunity for accumulation. The stock has been corrected by ~4.83% in the past month. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the growing topline and expected growth in future. For the purpose of valuation, peers such as Uniti Group Ltd (ASX: UWL), TPG Telecom Ltd (ASX: TPG), Telstra Corporation Ltd (ASX: TLS), and others have been considered. Considering the expected upside in valuation, growing topline and bottom line, record sales in Nov and Dec 21, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.150 as on 06 April 2022.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

ST1 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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