Eroad Limited

ERD Details

Eroad Limited (ASX: ERD) is an integrated technology and tolling service provider. It designs and manufacture in-vehicle hardware, payment systems, merchant gateways and offers tech-enabled value-added services. It has a market capitalization of ~AU$434.05 million as on 26^th April 2021.

Results Performance (Half-Year ended 30 September 2020)

For the first half year ended 30 September 2020, revenue grew by 19.0% to $45.8 million versus $38.5 million in H1FY20 led by rise in Software as a Service (SaaS) revenue by 17.6% YoY to $42.1 million This rise reflected growth in contracted units from 108,414 to 122,193 and rise in average monthly revenue per unit (ARPU) from $57.60 to $58.80. Also, the asset retention rate cemented at 95% and annualised monthly recurring revenue metric (AMRR) grew from $84.0 million at 31 March 2020 to $84.8 million as at 30 September 2020, indicating growth in new units and SaaS per Unit.

On the back of this, the EBITDA grew by 28.6% YoY to $15.3 million and the company reported net profit of $0.3 million versus net loss of $0.3 million in H1FY20.

Key Data (Source: Company Reports)

Recent Updates:

On 20 April 2021, the company released its quarterly update for the period ended 31 March 2021. During the period, the contracted units grew 2,726 and asset retention rate was reported at 95% across the group. It has sold 1,054 Myeroad Clarity Dashcam units in March 2021.

Key Data (Source: Company Reports)

Key Risks:

The company has increased its doubtful debtor provisioning for aged debtors in New Zealand and North America. In Australia, the growth is stable to normal however at lower levels as it has not seen phenomenal rise on FY20 monthly run-rate. Further, the growth was also hampered by multiple lock-down in Victoria for Q2FY21.

Outlook:

As per the management, the telematics will rise as businesses plan to slash fleet related costs and expand supply chain. Further, government has mandated regulatory telematics solutions that is expected to driver growth in future period, imposing telematics acceptance over the next 5+ years. Meanwhile, the growth momentum in customers, and ESG reporting will drive demand for low-cost telematics solutions. Importantly, the company is focused to acquire medium and enterprise clients in North America and Australia. Growing platform to enable larger enterprise fleets, integration and Data Analytics capability to offer solutions providing higher insights, benchmarking and targeted action is expected to improve growth visibility for the company.  

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Technical Overview: 

ERD stock price has rallied ~53.95% from a low of AUD 3.54 made on 19 March 2021 to a recent high of AUD 5.45 tested on 26 April 2021. On the daily chart, the stock prices are facing strong resistance of rising trend line at AUD 5.46 level. The momentum indicator RSI (14-period) is trading in an extremely overbought zone (~83 levels), indicating a possibility of downside correction from the current level. An important support level for the stock is placed at AUD 4.14, while the key resistance level is placed at AUD 5.46. 

Stock Recommendation: The stock has a 52-week low and high of $3.54 and $5.45, respectively and is currently trading above the average of 52-week high-low range. The stock has witnessed a rise of ~7.8% in 3 months and increased by ~39.0% in 6 months. 

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and there are expectations that the stock price might witness a fall of high-double digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer average) considering increased provisioning of bad debt and volatile transport and logistics conditions due to Covid-19 restrictions.

Considering the technical analysis, recent returns, risks associated, and current trading levels, we believe it is prudent to book profits in ERD. Thus, we give a ‘Sell’ recommendation at the current price of $5.35 per share, up by 0.943% on 26^th April 2021.

Note: 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.

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