HT&E Limited

HT1 Details

Share Redemption Update: HT&E Limited (ASX: HT1) is involved in the media and entertainment business with a footprint in Australia and Hong Kong (HK). The company’s reportable segments include Australian Radio Network (ARN), HK outdoor (Billboard, transit, and other outdoor advertising), and Investments in Emotive Pty Limited and Soprano Design Limited (24.9%). On 20 October 2021, HT1 reported a buy-back of 50,001 shares for $76,576.53.

Sale of Soprano Cancelled: The shareholders of Soprano Design Limited (“Soprano”) have consented to cancel the ongoing negotiations for the sale of Soprano to Link Mobility Group Holdings AS (“Link Mobility”).

Recently, Soprano and Link Mobility had entered an indicative term sheet wherein Soprano would sell its 100% share capital. However, the parties could not agree on mutual terms to formulate a legally binding agreement.

1HFY21 Highlights:

• Revenue Growth: The total revenue increased by 21% YoY to $110.48 million in 1HFY21 compared to 1HFY20. Advertiser confidence and enhanced consumer sentiment contributed to this revenue growth on a pcp basis.
• Rise in NPAT: The company recorded profitable growth in 1HFY21 with $11.92 million NPAT compared to a net loss of $57.93 million in the pcp.
• Improved Liquidity Position: The company held $76.71 million cash and cash equivalents as of 30 June 2021 versus $65.08 million as of 31 December 2020.
• Ongoing Tax Dispute: HT1 maintains ~$34 million estimated provisions for uncertain tax treatments for the two ongoing disputes as of 30 June 2021. However, the result is uncertain and may differ from the provisions.

Operating Revenue & Net Income from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company is exposed to interest rate changes on its cash and debt balances, equity price risk given its equity investments listed shares. The company faces COVID-19 volatility and has suffered an impact on its operations in the past.

Outlook:

• For the ARN segment, HT1 plans to invest in the launch of a new breakfast show in Melbourne and execute an original podcast content creation strategy. The company has plans to increase its digital commercial capability and launch ‘The Edge’ again. All these initiatives and investments will lead to an increase in total operating costs and people by ~$2-3 million in FY21 over FY19 levels.
• For the HK Outdoor/ Cody segment, improved mobility levels and trading conditions continue with July 2021 revenues up 56% YoY. If the current COVID-scenario persists, HT1 expects the trend to continue for Q3FY21 based on its forward bookings.
• The company expects that consolidation in media markets to continue.

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 HT1 gave a negative return of ~7.64% in the past three months and a negative return of ~20.52% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.415 - $2.100. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering its higher net debt (bank loans) in 1HFY21, ongoing tax disputes, and COVID-19 uncertainty, and expected increase in FY21 total operating costs. For this purpose of valuation, few peers like Aspermont Limited (ASX: ASP), Enero Group Limited (ASX: EGG), Southern Cross Media Group Limited (ASX: SXL), and others have been considered. Considering the current trading levels, decent financial results of 1HFY21, well capitalisation position, improved consumer sentiment & recovery in advertising spend in Australia and HK, and valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.510, as on 20 October 2021, 11:10 AM (GMT+10), Sydney, Eastern Australia.

HT1 Daily Technical Chart, Data Source: REFINITIV

Spirit Technology Solutions Limited

ST1 Details

$5.1 Million Sale of Consumer Assets: Spirit Technology Solutions Limited (ASX: ST1) is a provider of Cloud, Telecommunication, Managed IT services, and Cyber Security services (collectively IT&T Services). Recently, ST1 signed an agreement to divest its consumer residential Internet business (non-core) to DGtek Pty Limited (DGtek), a broadband and telecommunications provider for $5.1 million.

• ST1 expects ~$2.5 million of book profit from this divestment. Strategically, the divestment will help the company to focus on providing advanced digital workplaces to Small Medium Businesses (SMB) to corporates.
• ST1 is also exploring divesting the fixed wireless towers and considering multiple indicative proposals obtained. The Board is yet to finalise a firm opinion on the divestment given its material nature.

Disclosure of Derivative Positions: On 12 October 2021, ST1 has updated that it has received notice from Regal Funds Management Asia Pte Limited, pursuant to the Australian Takeovers Panel Guidance Note.

FY21 Results:

• The company exited FY21 with an ARR (Annual Recurring Revenue) of $65 million.
• The total revenue for FY21 was up by 200% YoY to $104.5 million compared to $34.9 million in FY20.
• ST1 is developing IT&T assets to evolve as a modern Telco player. In FY21, the company invested in integration and migration projects to develop a scalable platform that offers multiple product solutions.
• With the acquisition of the Nexgen Group during FY21, the customer base expanded in the SMB (Small & Medium Business) segment with over 5,500 Data & Voice customers and 100 plus sales staff.

Increase in Cash Receipts from Customers from FY20 to FY21; (Analysis by Kalkine Group)

Key Risks: The company is exposed to credit and liquidity risk, ongoing COVID-19 pressures, integration risk from multiple acquisitions, and foreign currency changes. 

Outlook:

• ST1 plans to release the Q1 FY22 performance on 21 October 2021.
• The company plans to complete the integration of Nexgen Australia Group Pty Limited’s business during 2HFY22. Intalock Technologies Pty Limited acquired in December 2020 will also undergo integration with ST1.
• The company will continue its strategy implementation in FY22 to leverage cross-sell opportunities to the expanded customer base from the recent acquisitions.
• With larger contracts in hand in the mid and corporate markets and their consistent execution gradually in FY22, ST1 expects to continue the growth momentum.
• The positive organic demand for products will be mapped with the cost pressures due to a tight labour market and plans to increase brand investment. The company anticipates COVID-19 lockdowns to pose a continued challenge to the organic growth focus.

Valuation Methodology: EV/EBITDA 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 gave a positive return of ~2.12% in the past month and a negative return of ~24.99% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.210 - $0.450. The stock has been valued using the Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/EBITDA multiple, considering the increase in borrowings (non-current liabilities) in FY21, continued impact of COVID-19 lockdowns on the organic demand, and expected cost pressures. For this purpose of valuation, few peers like MNF Group Limited (ASX: MNF), Telstra Corporation Limited (ASX: TLS), TPG Telecom Limited (ASX: TPG), and others have been considered. Considering the current trading levels, decent financial results in FY21, expanded customer base from recent acquisitions, valuation, positive demand for all its products, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.230, as on 20 October 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

ST1 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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