Codan Limited

CDA Details

Appointment of Managing Director and CEO: Codan Limited (ASX: CDA) is engaged in designing, manufacturing, and marketing several high value-added electronics products for global government, business, aid and humanitarian, and sophisticated consumer markets. As announced on 10 November 2021, the company has appointed Alf Ianniello as Managing Director and Chief Executive Officer of the company, which will be effective from 4 January 2022.

• Mr Ianniello will be provided with an FY22 STI opportunity which is likely to target the payment of 30% of his fixed remuneration.
• However, this is subject to an achievement of 80% of the EBIT achieved by the Company in FY21 and other conditions to be determined.

FY21 Financial Summary:

• Rising Sales and NPAT: During FY21, CDA posted the highest ever sales of $437 million in its history, with a growth of 26% over FY20. Backed by the rising sales in the gold detectors and recreational metal detectors in most of its markets, underlying NPAT for the year soared by 52% to $97.3 million.
• Decent Cash Generation: The company closed FY21 with excellent cash generation with close to zero net debt after the spending around $174 million for acquisitions.
• New Contract by Subsidiary: After the end of FY21, CDA’s wholly owned subsidiary DTC Communications Inc (DTC), has won a multi-year contract to supply DTC software-defined mesh radios to global technology corporation. DTC has received initial purchase order of US$28.2 million, which is to be delivered in the upcoming 12-month, out of which 60% is likely to be delivered in FY22.

 Revenue & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Technology Risk: The company’s business could be impacted by the shift in new technology within the industry; hence, its operational performance could be at risk.
• Cyber Security Risk: CDA is exposed to a material business risk, which arises from failure in maintaining cyber security.

Outlook:

• On the back of a strong start to the year and in line with the FY21 run rate, the company believes that it is capable of delivering another successful year in FY22. In addition, CDA anticipates robust demand for its metal detection products moving forward.
• During FY22, the company would be focusing on integrating the new businesses and realising the planned sales and cost synergies.
• CDA would continue with its strategy of making investments in new product development as well as to seek opportunities to cement the profitability by expanding into related businesses offering complementary products and technologies.
  

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: As on 30 June 2021, the company had cash and cash equivalents of $22.36 million as compared to $92.83 million as on 30 June 2020. The stock of CDA is trading below its 52-week low-high average of $9.200 - $19.430, respectively. The stock has been corrected by ~23.55% and ~36.15% in the past one and three months, respectively. The stock has been valued using an 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 and higher operating expenses, etc. For the purpose of valuation, peers such as Nanoveu Ltd (ASX: NVU), Link Administration Holdings Ltd (ASX: LNK), Ava Risk Group Ltd (ASX: AVA), and others have been considered. Considering the expected upside in valuation, growing sales and profits, contract secured by the subsidiary, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $10.130, as on 19 November 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

CDA Daily Technical Chart, Data Source: REFINITIV 

Laybuy Group Holdings Limited

LBY Details

Q2FY22 Financial and Operational Highlights: Laybuy Group Holdings Limited (ASX: LBY) provides Buy-Now-Pay-Later (BNPL) payment solution to customers and merchants through its platforms. During the quarter ended 30 September 2021, the company added around 2000 merchants, which include Amazon, ASOS, Nike, B&Q and eBay through App Exclusives as well as direct merchants The Fragrance Shop, Alternative Airlines, and InMotion in the UK.

• During the quarter, the company witnessed a record income of NZ$10.8 million, reflecting YoY growth of 48%. Active customers reached 889,000 in Q2 as compared to 829,000 in Q1FY22 and 568,000 in Q2FY21.
• LBY posted a growth of 62% in Gross Merchandise Value (GMV) to NZ$206 million with an annualised GMV of NZ$825 million. The growth was mainly contributed by the UK segment, which recorded annualised UK GMV of £226 million or NZ$446 million.

Income Highlight (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Exchange Risk: The company is exposed to risk arising from the adverse movement in foreign exchange as it operates in multiple geographies.
• Credit Risk: LBY’s operational and financial health could be impacted by the failure of obligations by the counterparties.

Outlook:

• Looking forward, the company would be focused on the opportunities presented by the large UK market wherein LBY is aiming for large influential merchants to drive scale, network effects and brand recognition.
• The company is expecting to attain the milestone of NZ$1 billion in Gross Merchandise Value in FY22 on the back of the upcoming Christmas season and Black Friday sales of Q3.
  

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: In October 2021, LBY secured a new debt facility of £30 million with Partners for Growth VI, L.P. (PFG) to support its UK receivables book. The stock of LBY is currently trading near to its 52-week low level of $0.415, offering a decent opportunity for accumulation. The stock has been corrected by ~10.41% and ~18.09% in the past one and three months, respectively. The stock has been valued using the EV/Sales Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the COVID-19 led uncertainties and low efficiency in creating profits, etc. For the purpose of valuation, peers such as Openpay Group Ltd (ASX: OPY), Sezzle Inc (ASX: SZL), and Tyro Payments Ltd (ASX: TYR) have been considered. Considering the expected upside in valuation, growth in income, rising GMV, increasing active customers, deleveraged balance sheet, focus on the UK Business, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.420, down by ~3.449% as on 19 November 2021.

LBY 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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