Nine Entertainment Co. Holdings Limited

NEC Details
 
Terminated Engagement with NZME:Nine Entertainment Co. Holding Limited (ASX: NEC) is Australia’s leading locally owned media company. On 11 May 2020, the company confirmed that it has been in talks with NZME Limited (NZX: NZM) regarding an offer by NZME for Nine’s NZ business, Stuff. However, the company has notified that it has terminated further engagement with NZME. NZME believes that it is still in a binding exclusive negotiation period with Nine and has refused to accept that exclusivity has been validly terminated.

Resilient Performance Amid COVID-19:In a recent trading update, the company has confirmed that revenue in the third quarter of FY20 was in-line with previous guidance. Further, the Audiences across all of the company’s platforms are showing strong growth, including linear audience growth on core News and Current Affairs content. In response to COVID-19, the company has transitioned the majority of its work-force to work at home’ with minimal interruption.

Operational Initiatives:In order to tackle the current global crisis, the company intends to implement major short and long-term cost initiatives across all of its businesses. The first round of these initiatives is highlighted in the snapshot below.


Cost Initiatives (Source: Company Reports)

Valuation Methodology:EV/EBITDA Multiple Based Relative Valuation Approach (Illustrative)

EV/EBITDA Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:In the past six months, the stock of NEC has declined by 21.41% on ASX and is currently trading close to the average of its 52 weeks low and high price of $0.815 and $2.130, respectively, offering a decent opportunity for accumulation.  We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method andarrived at a target price with an upside of lower double-digit (in percentage terms). Considering the company’s resilient performance amid COVID-19, its FY20 outlook, and current trading levels, we give a “Speculative Buy” rating on the stock at the market price of $1.405, down by 3.103% on 12 May 2020. 

 
NEC Daily Technical Chart(Source: Refinitiv, Thomson Reuters)
 

ELMO Software Limited

ELO Details

Equity Raising via Placement and SPP: ELMO Software Limited (ASX: ELO) is a cloud-based HR & Payroll software provider which offers customers a unified platform to streamline processes for HR, and also manage payroll and rostering / time & attendance. On 12 May 2020, the company announced that it has completed its fully underwritten A$70 million institutional placement at an offer price of A$7.00 per new share (Placement Price).The company will shortly conduct a non-underwritten share purchase plan offer to existing eligible shareholders, to raise up to $20 million. The proceeds from the Placement and SPP Offer will be utilized to capitalise on an increased pipeline of acquisition opportunities and take advantage of tailwinds in the adoption of cloud-based software due to mass remote-based working. 

Decent H1FY20 Results: For the first half of FY20, the company reported statutory revenue of $23.6 million, up 33.9% on pcp. Over the period, the company’s active customers grew to 1,478, up 30.9% on pcp. The company’s Average Recurring Revenue (ARR) stood at $52 million, up 42.8% on PCP. In the third quarter of FY20, the company’s cash receipts stood at $13.3 million, up 39.4% on Q3 FY19


H1FY20 Results (Source: Company Reports)

What to expect: The company is well capitalised to manage through the current COVID-19 pandemic and to take advantage of acquisition opportunities. Moving forward, the company also expects to benefit from the anticipated acceleration in the adoption of cloud-based business tools including HR technology throughout the ANZ region and beyond. In FY20, the company expects its revenue to be between $50-$52 million.

Valuation Methodology:P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: In the last six months, the stock of ELO has provided a positive return of 28.62% to its shareholders. For H1FY20, ELO’s gross margin stood at 84.60%, slightly higher than the industry median of 84.2%. For the same period, the company had a current ratio of 2.3x, higher than the industry median of 1.82x. We have valued the stock using Price to Book valuemultiple based illustrative relative valuation method andarrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Livetiles Ltd (ASX: LVT), Nitro Software Ltd (ASX: NTO) and Integrated Research Ltd (ASX: IRI). Considering the recent capital raising, decent H1FY20 performance, and decent liquidity position, we give a “Hold” rating on the stock at the current market price of $7.0, down by 11.504% on 12 May 2020. 

 
ELO Daily Technical Chart(Source: Refinitiv, Thomson Reuters)

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