Appen Limited 

Over-Valued Position at Current Juncture: Information technology company, Appen Limited (ASX: APX) recently announced its full year result ended on December 31, 2018. It reported increase in its revenue by 119% to $364.3 Mn. This was driven by new and existing customers that are developing an increasing array of AI solutions. The inclusion of Leapforce, along with customer expansion and economies of scale contributed to the strong Q4 growth and margin expansion.

The company’s underlying EBITDA increased by 153% to $71.3 Mn. Its underlying EBITDA margins enhanced from 16.9% to 19.6%. Its underlying NPAT increased by 148% to $49 Mn. Owing to strong financial performance, the Board of Directors declared a final dividend of 4.0 cps (franked to 73%) with payment date on March 25, 2019 and record date on March 1, 2019. The full year dividend of the company stood at 8 cps. In a previous update, APX announced about its completion of fully underwritten two hundred and eighty-five million institutional placements at an offer price of A$21.50 per new share. The capital raised will be used to fund the acquisition of Figure Eight Technologies.


Financial Metrics (Source: Company Reports)

The company expects the AI market to boom with a forecast of $169 Bn to $191 Bn by 2025. As per the McKinsey Global Institute estimates, up to ten percent of the cost of AI is labelled data which suggests up-to $19 Bn of Appen’s addressable market by 2025. Appen is investing to enhance its data volumes and quality, most of which have been realized from the efficiency savings identified for 2019 from the Leapforce integration and forecast at $6 Mn P&L impact in 2019.

Stock Recommendation: APX’s share generated a positive YTD return of 85.0%. The top line and bottom line of the company has performed extremely well which has led to an increase in its share price. Its current PE multiple is trading at 60.33x which is higher than the industry median of 30.45x, showing overvalued at the current juncture. At the same time, the stock is trading close to its 52-week high price of $25.610. Hence, we maintain our “Expensive” rating on the stock at the current market price of $23.370 (down 1.309% on March 21, 2019).
 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.