5G Networks Limited

5GN Details

5GN Riding on Acquisition Synergies: 5G Networks Limited (ASX: 5GN) is engaged in providing data network and cloud services. The market capitalisation of the company stood at ~$155.16 million as on 3^rd December 2020. Recently, the company conducted its 2020 Annual General Meeting, wherein Chairman of the company stated that FY20 was a unique and exciting year for 5GN. During the year, the company successfully executed numerous key strategic initiatives, which included a number of acquisitions, such as ColoAU in order to grow and improve its wholesale sales channel. In November 2020, the company inked a lease agreement for the acquisition of ex-Pipe Networks Data Centre in Fortitude Valley, wherein, it would pay a purchase price of $1.1 million, which includes all operating infrastructure at the facility. The company would finance the acquisition through existing cash reserves, with a generous rent-free period on a 10-year lease. The company added that the acquisition would accelerate the continued execution of the 5GN wholesale channel strategy for infrastructure and data centre services.

Financial Highlights: During September 2020 quarter, 5GN recorded decent growth in sales and strong pipeline supported by $5.9 million of new and re-signed revenue. The company recorded strong cash receipts of $14.3 million, which indicates the continuous shift to the higher-margin annuity services. For the year ended 30^th June 2020, the company reported growth of 16% in recurring revenue, fueled by the migration of customers to higher-margin recurring revenue streams. Total income for the year amounted to $49.8 million as compared to $51.2 million in FY19.

Product Revenue/ Margin (Source: Company Reports)

Guidance: For FY21, the company expects its revenue to be in the range of $60 million and $65 million before material acquisitions. Further, the company expects FY121 EBITDA to be in the ambit of $8 million and $8.5 million before material acquisitions.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th September 2020, the cash balance of the company stood at $47.5 million, which include proceeds of $27.5 million from placement.  The stock of 5GN has corrected by 13.58% and 34.27%, respectively in the last one and three months. Considering this, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such Uniti Group Ltd (ASX: UWL), Telstra Corporation Ltd (ASX: TLS), and Vocus Group Ltd (ASX: VOC), to name a few. On a technical front, the stock has a support level of $1.114 and a resistance level of $1.92. Therefore, considering the acquisition synergies, decent sales growth and strong pipeline, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.385 per share, up by 1.465% on 3^rd December 2020.

5GN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

MyFiziq Limited

MYQ Details

Signing of Binding Term Sheet with Canada Based Technology Company: MyFiziq Limited (ASX: MYQ) is involved in the development and marketing of a mobile application for use in the fitness industry. The market capitalisation of the company stood at ~$114.32 million as on 3^rd December 2020. Recently, the company notified the market that it has signed a binding term sheet with Triage Technologies Inc., wherein, the company would acquire a strategic equity stake in Triage and license use of Triage AI health assistant technology for integration into the CompleteScan SaaS offering. The company added that Triage AI platform has been used over 500,000 times in 2020. Previously, the company also inked a binding term sheet with The Original Fit Factory Ltd for the integration of its body-tracking application into The Original Fit Factory’s B2C and white label B2B offerings.

Financial Highlights: For the quarter ended 30^th September 2020 quarter, the company reported cash receipts from customers of $659k, reflecting a rise of 1,634% against September 2019 quarter. The cash expenditure witnessed a fall from $1,182k in Q1FY20 to $999k in Q1FY21. In addition, the net cash outflow from the operating activities stood at $310k in Q1FY21, down from $1.14 million in pcp. During FY20, the company reported total revenue amounting to $667,197, down from $898,556 in FY19. Net loss for the year amounted to $5,396,512 against $4,357,162 in FY19.

Key Financials (Source: Company Reports)

Outlook: Going forward, the company is focused on driving top-line revenue by launching with its partners in accordance with already signed fifteen agreements. In addition, the company is optimistic about its outlook for FY21. The company is scheduled to conduct its 2020 Annual General Meeting on 11^th December 2020.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $648k. In the last three and six months, the stock of MYQ has moved up by 132.60% and 409.52%, respectively. As a result, the stock is trading towards its 52-week high level of $1.495. On a technical front, the stock has a support level of $0.814 and a resistance level of $1.406. Thus, considering the higher debt to equity multiple, fall in revenue and rising losses and a steep rise in prices in past few months, we advise investors to avoid the stock at the current market price of $1.065 per share, up by 12.105% on 3^rd December 2020, owing to the signing of the binding term sheet with Triage Technologies Inc.

MYQ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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