EVS Details

Envirosuite Ltd (ASX: EVS) is engaged in providing environmental intelligence solutions with offices spread across the Asia Pacific, USA, Canada, Europe, and South America.

H1FY21 Result Performance (For the Half Year Ended 31 December 2020)

EVS has recorded revenue of $23.6 million, a growth of $3.4 million over H2FY20. Due to the benefit of cost-out initiatives, the gross margin improved to 40.6% from 32.0% in H2FY20 and 25.6% in H1FY20. However, the net loss after tax rose to $7.81 million from $6.49 million in H1FY20.

Consolidated Income Statement (Source: Company Reports)

Raising Equity

The company on 24 May 2021 declared the raising of equity of around A$14 million that includes a pro-rata accelerated non-renounceable entitlement offer as well as an institutional placement. The funds from the equity raising will be utilized towards boosting its investment into growing underlying sales in the EVS Omnis and EVS Water product suites. It will also use the funds on global expansion initiatives in the short term. The fresh shares will be issued at A$0.085 per share. The retail entitlement offer opened on 31 May 2021 and is expected to close on 11 June 2021.

Record New ARR Sales in Q3FY21

The company has logged a record quarter with $2.1 million in new ARR sales resulted in an increase of ~180% from $1.15 million in the previous quarter. This takes the overall ARR for FY21 to $42.5 million. Besides, it bagged one-off revenue of $1.7 million in hardware and services during the period and added 13 new customers.

Outlook

The company is expecting strong demand and acceleration in the pipeline for Q4FY21. With its renewed emphasis as well as discipline, the company is confident that it is better positioned to gain scale and cater to the rising demand. It also remains hopeful of sustaining the record Q3FY21 performance in Q4FY21 and FY22. It expects its recurring revenue to grow by 4-8% in H2FY21 over H1FY21. Further, it expects an improvement in adjusted EBITDA in H2FY21 over H1FY21.

Key Risks

The group’s performance is impacted by financial risks, mainly related to credit, liquidity, and foreign currency risk. The duration and severity of the impact of the COVID-19 pandemic mainly on the airport sector also remain a concern.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

EVS has delivered 3-months and 6-months returns of ~-25.75% and ~-51.58%, respectively. The stock is trading lower than the average of the 52-week low price of $0.091 and the 52-week high price of $0.252, which indicates a good opportunity for accumulation. We have valued the stock using EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in percentage terms). We believe that the stock might trade at a slight premium as compared to its peer average EV/Sales (NTM Trading multiple) considering robust momentum in ARR sales along with strong demand and a decent pipeline for Q4FY21. For this purpose, we have taken peers like Adacel Technologies Ltd (ASX: ADA), Class Ltd (ASX: CL1), Bravura Solutions Ltd. (ASX: BVS), to name a few. Considering the revenue growth in H1 FY21, equity fundraising, growth strategies, valuation, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.110, down by ~4.348% on 31^st May 2021.

EVS Daily Technical Chart, Data Source: REFINITIV

Note: 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.

The reference data in this report has been partly sourced from REFINITIV.

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