IRI Details

This report is the full version of the report published on 20 May 2022 at 3:04 PM GMT.

Management Confidence Increases for H2FY22 Results: Integrated Research Limited (ASX: IRI) operates in GICS -Application Software sector and is a leading provider of performance monitoring solutions to businesses for collaboration and payment transaction systems.

Market Announcement:

• IRI in the recent announcement indicates decent H2FY22 results will be reported because of the expectation of a significant number of new contract sales and renewals. The company’s management is confident enough to release this update to investors before the release of results.
• The company indicates a robust revenue from Asia Pacific region, while the turnaround from USA in the second half is yet to materialise.
• Management expects in second-half revenue will be highly influenced by license fees from term contract wins.
• IRI is expected to remain profitable in H2FY22, but exchange risk will lead to some decline in annual revenue in the range of 3% to 7% for FY22 (H1FY22: down 7%) compared to the previous year.
• Cashflow will remain strong even during the second half due to positive revenue stream expectations. IRI reports a net cash balance of around $12.7 million as of 30^th April 2022 Vs $5.5 million (30^th June 2021)

1HFY22 Key Announcement: The major source of revenue for IRI is collaborations, and its revenue share has increased from 59% in H1FY21 to 61% in H1FY22, at the cost of transact and professional services has declined on an interim basis. In 1HFY22, the company reported decent growth from Asia Pacific where revenue went up by 80%, Europe (up 19%), and America (down 24%).

Business segment Highlight (Source: Analysis by Kalkine Group)

Key risk:

• IRI anticipates remaining profitable in the second half, but the NPAT will remain below the prior year because of the recent drop in AUD/USD exchange rate.
• IRI operates in a sector that is highly competitive and it will create some pressure on its operational efficiency.

Outlook: IRI anticipates better second-half results because of the timing of license renewal. Additionally, the hybrid solution based on cloud technology is gathering momentum, which will drive its future long-term growth prospect. Given that in FY22 the renewal cycle will be less than the previous year, the major achievement of a business plan is significantly related to new business. In the future, the business strategy remains unaffected as the CEO is currently reviewing the operational structure of the business to accelerate IRI’s turnaround plan.

Valuation Methodology: Price/Earnings Per Share-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 IRI is trading below its 52-week low-high average of $0.55 - $2.53, respectively. The stock has been corrected by ~30.25 in the past month. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peers, considering the surging NPAT, positive margins, timing of license renewal, etc. For the purpose of valuation a few peers like Infomedia (ASX: IFM), Hansen Technologies (ASX: HSN), Iress (ASX: IRE), and others have been considered. Considering the indicative upside in the valuation, future growth prospects in the long run, management confidence, improvement in operational efficiency, 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 $0.560 as on 20 May 2022, 2:15 PM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

IRI 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 for 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 a 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 price

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