Appen Limited

APX Details

Investment in Mindtech Global Limited: Appen Limited (ASX: APX) provides quality data solutions and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers and government agencies. Recently, the company made an investment of GBP 2.0 million in Mindtech Global Limited (synthetic data company) in exchange for a minority equity stake.

Insights of FY21: During FY21, the company maintained its track record of profitable growth, benefited from an increase in new non-ad-related global projects and a significant increase in new business in China.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: The company’s performance could be impacted by the uncertainties arising from the evolvement of the COVID-19 pandemic. In addition, APX’s performance could also be impacted by adverse movement in foreign currency.

Outlook:  The company expects to double its FY21 revenue by FY26. In addition, the company is focused on improving the customer mix with one-third revenue from non-global customers.

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 APX is trading below its 52-week low-high average of $6.080 - $18.665, respectively. The stock has been corrected by ~20.40% in the past one month. The stock has been valued using a P/E multiple-based illustrative relative valuation 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 COVID-19 related risks and inefficiency in rising profits. For the purpose of valuation, peers such as Data#3 Ltd (ASX: DTL), Link Administration Holdings Ltd (ASX: LNK), and Over The Wire Holdings Ltd (ASX: OTW) have been considered. Considering the expected upside in valuation, expect growing revenue, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $6.960, as on 18 March 2022, ~3:50 PM (GMT+10), Sydney, Eastern Australia.

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.

APX Daily Technical Chart, Data Source: REFINITIV 

Dropsuite Limited

DSE Details

FY21 Operational and Financial Summary: Dropsuite Limited (ASX: DSE) provides a cloud software platform that allows businesses to easily backup, recover and protect their important business information. FY21 proved as another outstanding year on the back of a growing global reseller partner network, driven by structural demand within the global data backup and recovery market and the strong position and product recognition of the company within that channel.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: DSE’s business could be impacted by the loss of users as there is no guarantee that users would continue to take service. The company is also exposed to risks arising from failure in maintaining cyber security.

Outlook: The company seems to be well-financed to continue delivering strong annual recurring revenue on the back of its significant existing partner base and a solid pipeline of new partners. For FY22, the company would be focused on driving product innovation to maintain its market-leading position as a backup vendor of choice.

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 DSE is trading near to its 52-week low level of $0.155, offering a decent opportunity for accumulation. The stock has been corrected by ~12.19% in the past one month. The stock has been valued using EV/Sales multiple-based illustrative relative valuation 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 EV/Sales multiple, considering the COVID-19 disruptions, inefficiency in generating profits, etc. For the purpose of valuation, peers such as Etherstack PLC (ASX: ESK), TechnologyOne Ltd (ASX: TNE), Xero Ltd (ASX: XRO), and others have been considered. Considering the indicative upside in valuation, rising ARR, optimistic outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.180, as on 18 March 2022, ~10:50 AM (GMT+10), Sydney, Eastern Australia.

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.

DSE 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.