Stocks’ Details
 

Tyro Payments Limited

Strong Financial Position: Tyro Payments Limited (ASX: TYR) provides credit, debit and EFTPOS card acquiring, medicare and private health fund claiming and rebating services to Australian businesses. The market capitalisation of the company stood at $1.19 Bn as on 14^th April 2020. The company is currently in a robust financial position with cash, cash equivalents and available financial investments of $154 million as at 27 March 2020. Higher trades receivable received in January 2020 has supported growth in cash, cash equivalents and financial investments. The below picture depicts an idea of transaction value updates for the balance of FY20 on a weekly basis.


Transaction Value Updates (Source: Company Reports)

Withdrawal of Guidance: In view of uncertainty from the spread and duration of the COVID-19 pandemic, together with adverse impact on its merchants’ businesses, the company has recently suspended its guidance for FY20.
Stock Recommendation: As at 31^st December 2019, the total Tier 1 capital of the company stood at $177 million. The company’s strong financial position at the end of 1H FY20 was enhanced by funds raised in its IPO and assisted by positive EBITDA performance. TYR possesses a simple capital structure with no corporate debt. Tyro has EV/ Sales multiple of 4.9x as compared to the industry average (Financial) of 7.6x on TTM basis on TTM basis. Therefore, considering the strong financial position and no corporate debt position, we give a “Buy” recommendation on the stock at the current market price of $2.620 per share, up by 9.167% on 14^th April 2020.

Hansen Technologies Limited

Availability of Decent Funding: Hansen Technologies Limited (ASX: HSN) is involved in the development, integration and support of billings systems software for the telecommunications and utility industries. The market capitalisation of the company stood at $554.94 Mn as on 14^th April 2020. In response to COVID-19, the company has allowed flexible working arrangements for its staff. As of now, the company is not expecting any impact from COVID-19 on its recurring revenue, which it derives from its customer relationships. The company is running its business with the availability of significant funding to assist with cash flow requirements. HSN entered a secured $225 million syndicated multi-currency facility in May 2019, which will mature on 30^th April 2022.


Revenue Bridge (Source: Company Reports)

Guidance Suspension: The company has withdrawn its formal earnings guidance for FY20 in light of the uncertainty surrounding the potential effects of COVID- 19 on its future operational and financial performance. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 1.70x in 1H FY20, reflecting YoY growth of 16.2%, reflecting improved position to settle short-term obligations.We have valued the stock using EV to Sales multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Infomedia Ltd (ASX: IFM), Integrated Research Ltd (ASX: IRI), Data#3 Ltd (ASX: DTL), etc., and arrived at a target price, which is offering upside of lower double-digit (in percentage terms). Hence, considering the decent funding position, improved liquidity position and valuations, we give a “Buy” recommendation on the stock at the current market price of $2.760 per share, down by 1.429% on 14^th April 2020.

Data#3 Limited

No Effect on Sales Pipeline: Data#3 Limited (ASX: DTL) offers consulting, software, infrastructure and managed solutions with the market capitalisation of $531.21 Mn as on 14^th April 2020. Recently, Mitsubishi UFJ Financial Group, Inc made a change to their substantial holdings on 3^rd April 2020. The current voting power remains at 5.78% as compared to the previous voting power of 6.79%. Due to COVID-19, the company has not experienced any material change to its overall sales pipeline till 2^nd April 2020. Though, customers have shifted their priorities to address immediate remote working, cloud and security requirements.

During 1H FY20, it reported total revenue amounting to $718.9 million with a rise of 11.6%.  This included public cloud-based revenue of $251.9 million.


Revenue Growth (Source: Company Reports)

Confident About Future Growth: The company is optimistic about the delivery of its longer-term strategy. The company would achieve its full-year financial objective on the strong 1H performance and pipeline of opportunities for 2H FY20.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 12.5% and 2.2% in 1H FY20 as compared to the industry median of 74.8% and 28.8%, respectively. We have valued the stock using P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Hansen Technologies Ltd (ASX: HSN), Vista Group International Ltd (ASX: VGL), Infomedia Ltd (ASX: IFM), etc., and arrived at a target price, which is offering correction of lower single-digit (in percentage terms). Therefore, considering the expected corrections and aforesaid facts, we have a watch stance on the stock at the current market price of $3.710 per share, up by 7.536% on 14^th April 2020.

Xref Limited

Solid Sales Results in Q3 FY20: Xref Limited (ASX: XF1) is a human resource company, which brings ease, security and value to the recruitment process. The market capitalisation of the company stood at $17.27 Mn as on 14^th April 2020. During Q3 FY20, the company reported solid sales of $2.47 million including $0.5 million generated during the second half of March, despite difficult market conditions, resulted by fires and floods throughout Australia; and the holiday season as well as the pressures of COVID-19 globally. For the quarter, it reported revenue amounting to $2.2 million, reflecting the growth of 19%. XF1 has experienced a decline of 39% in average monthly cash burn rate from $1 million per month in Q2 FY20 to $600,000 per month in Q3 FY20.


Cash Burn Rate (Source: Company Reports)

Revised Cash Expense Forecast: Recently, the company has revised its estimate for total cash expenses to $3.0 million for Q4 FY20 from $3.4 million previously provided. 

Stock Recommendation: XF1’s credit usage for Q3 FY20 reached at $2.1 million with the growth of 17% from $1.8 million in Q3 FY19. Cash receipts stood at $2.4 million, indicating a rise of 11% increase on the $2.17 million. The stock of Xref has EV/Sales multiple of 1.4x as compared to the industry median (Professional & Commercial Services) of 2.0x on TTM basis. Thus, in light of solid sales results and growth in revenue during Q3 FY20, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.098 per share, up by 1.031% on 14^th April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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