AVA Risk Group Limited

AVA Details

FY21 Results: AVA Risk Group Limited (ASX: AVA) is a risk management and technologies service provider operating through Future Fibre Technologies (FFT), BQT Solutions (BQT) divisions. AVA Global DMCC is the Group’s international logistics services provider.

• Increase in Revenue: The company posted an increase in revenue to $65.71 million in FY21, up by 41% YoY due to growth in services and technology revenue. AVA has delivered revenue above the posted guidance of $60-$64 million in FY21.
• Growth in NPAT: AVA delivered an NPAT of $13.74 million in FY21 versus $4.94 million in FY20.
• Cash Balance: AVA reports a cash balance of $17.3 million with no debt as of 30 June 2021.
• Dividend Payment: AVA distributed $7.1 million in dividends to its shareholders in FY21. The company paid a special dividend of 2 cents per share on 11 March 2021 to the shareholders.

Sale of Services Division:

• On 17 August 2021, AVA divested its (non-core) Services Division, Ava Global, to TTG Bidco Limited for $63.1 million cash. Post its divestment, the Group estimates ~$57.9 million cash and no material debt.
• The Board has conducted a capital structure review and plans to return $39.2 million capital to its shareholders (~16 cents per share) and undertake an on-market purchase of $1 million shares.
• The Board will distribute the return on the capital subject to the receipt of a favourable Class Ruling from the Australian Taxation Office (“ATO”) and shareholder sanction at the Annual General Meeting (“AGM”) in October 2021.

Revenue & NPAT from FY18-FY21; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Impact: AVA’s Technology Division experiences international logistics delays and supply constraints on specific electronic components. The supply chain disruptions will continue in FY22 and may impact the timing of delivery orders.
• Technology Risk: The company must keep the system and products updated to keep its technology investment relevant.

Outlook: AVA expects the following contribution from its Technology Division in FY22:

• AVA will focus on the meaningful revenue generation from the partially translated $50 million sales pipeline for the Aura-IQ systems.
• AVA will leverage the go-to-market strategy with Dormakaba to generate sales into Europe and the US for BQT.
• The company aims to grow its sales (post-COVID-19) to Assa Abloy in Europe as per its existing contract.
• AVA expects to deliver $5.8 million of order backlog in FY22 from FY21.

• AVA estimates to receive $42.4 million of net cash proceeds upon sale completion of Ava Global DMCC-LLC, expected to happen by the close of October 2021. AVA will receive a net cash return of ~587% in ~five years and now focus on its Technology division.

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: The stock of AVA gave a positive return of 31.94% in the past three months and a positive return of 114.91% in the past year. The stock is currently trading above the 52-weeks’ average price level band of $0.225 - $0.785. The stock of AVA has a support level of ~$0.440 and a resistance level of ~$0.605. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a correction of high-single-digit (in % terms). The company might trade at a slight premium than its peers’ median, considering its increase in revenue, and NPAT and order backlog in FY22. For the purpose of valuation, few peers like Nanoveu Limited (ASX: NVU), Data#3 Limited (ASX: DTL), Catapult Group International Limited (ASX: CAT), and others have been considered. Considering the current trading levels, decent increase in the returns in the past months, valuation, and key risks associated with the business, we suggest investors book profit and give a ‘Sell’ rating on the stock at the current market price of $0.500 as on 30 August 2021, 12:18 PM (GMT+10), Sydney, Eastern Australia.

AVA 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.

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