ELMO Software Limited

ELO Details

Launch of New Module: ELMO Software Limited (ASX: ELO) provides cloud-based solutions for small businesses and mid-market firms. It earns its revenues through recurrent subscription-based business and has its presence in the geographies of Australia, New Zealand, and the United Kingdom. On 6 September 2021, the company has announced the launch of a new module, COVIDsecure which enables organisations to record, monitor, and report on the vaccination & test status of the employees. This will aid businesses to reopen safely post the COVID phase.

FY21 Performance Overview:

• The company delivered a decent performance in FY21 and reported 52.1% growth in ARR levels to $83.8 million in FY21, compared to FY20.
• Revenue increased by 38.1% to $69.1 million in FY21. The growth has been aided by a high level of subscription revenue at 96.7% during the year.
• There has been a turnaround in the EBITDA performance and the company delivered positive EBITDA at $0.4 million in FY21, compared to a negative $2.9 million in the pcp.
• It reported cash receipts of $79.8 million in FY21 and ended the period with a cash position of $81.9 million.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks:  The company’s line of business makes it prone to stiff competition from peers in the same space. Thus, it has to update itself with the latest technological trends and product offerings to keep itself ahead of the competition.

Outlook: The company believes that it has growth opportunities in the key markets of small business solutions and mid-market solutions. ELO has continued with its expansion plans and has introduced Breathe ANZ in H2FY21 and ELMO modules were launched in the UK in the mid-market segment. Moreover, it plans for ELMO mid-market UK launch in FY22. ELO also anticipates over $100 million in ARR in FY22 and has given a guidance range of $105-$111 million. It estimates revenue to be between $90.5-$95.5 million and EBITDA in the range of $1-$6 million in FY22. 

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: As per a recent update, the company’s director Danny Lessem has undergone a change of initial interest in the company and has acquired 149,328 ordinary shares at a consideration of $4.5486 per share. The stock of ELO is trading below its average 52-weeks' levels of $4.200-$7.440. The stock of ELO gave a negative return of ~15.54% in the past one year and a negative return of ~13.38% in the past one month.  The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit (in % terms). The company might trade at a slight premium to its peers’ average EV/Sales multiple, considering the turnaround in EBITDA performance, and optimistic guidance levels. For the purpose of valuation, peers such as Bigtincan Holdings Ltd (ASX: BTH), Adacel Technologies Ltd (ASX: ADA), Iress Ltd (ASX: IRE) and other have been considered. Considering the current trading levels, indicative upside in valuation, decent increase in ARR & revenues, turnaround in EBITDA performance and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.400, up by 1.616% as on October 06, 2021.

ELO 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 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 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 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 prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.