Technology One 

Strong Results: Technology One Limited’s (ASX: TNE) shares have maintained momentum despite major stakeholders offloading their stakes recently. Finnacle Investment Management Group Ltd decreased its voting power to 11.26% compared to 12.35% earlier. Another stakeholder, Hyperion Asset Management Limited also reduced its voting power to 10.98% compared to 12.02% previously. The company posted decent 1H FY18 numbers with Revenue increasing 6% to $120.4 Mn compared to $113.9 Mn in 1H F17. TNE witnessed increase in profit after Tax by 1% at $8.1 Mn in the latest reported period. The company is confident about its SaaS platform which registered the customer base of 280 in 1H FY18 compared to 199 as on 31 March 2017.


SaaS Platform Growth (Source: Company Reports)

On the valuation front, ROE has come drastically down at 5.4% compared to previous year’s 25.8%. However, TNE has managed to keep it close to the industrial average of 7.9%. Similarly, gauge of liquidity- Current ratio is at 1.82x compared to the industry average of 1.75X.

Stock Performance: The stock has witnessed a decent year in terms of generating value for the shareholders. Year to date, the company has generated positive return of 13.62%. The price is trading in a broad consolidation range of $5.462 to $5.687 and the relative strength indicator movement suggests that the price is more inclined to move higher. The company has been posting stronger recurring revenues and outlook for the same looks positive. Further, subscription licenses have also grown 44% to $16.0 Million. Going forward, growth prospects of TNE look good and therefore we maintain ‘Hold’ on the stock at the current market price of $5.660.
 

MSL Solutions

Consistent Performer: MSL Solutions Ltd (ASX: MPW) has surged 5.263% on September 17, 2018, on the back of positive market sentiments. The company reported good numbers in the financial year 2018 with Operating revenue at A$33.6 Mn, up 44% compared to the previous year. Revenue has been largely driven by higher sales and expanding footprint of MSL’s MPower Technology Platform internationally. We believe that financial performance of the company is sustainable as the recurring revenues contributed 47% of the total operating revenue, higher by 31% from the previous year. The company has a strong balance sheet with no debt and cash reserve of $6.6 Million. At present MPW has strong client base of 2,400 in over 25 countries and they are targeting customer base of over 5,000 venues in the 4-year period.


Growth Profile (Source: Company Reports)

On the valuation front, the company has posted positive Net margin of 13.6% as compared to the negative number last year and industry average of 0.5%. Adding value to the shareholder’s return, ROE has been recorded at 6.5%, in line with the industry average of 6.6%.

Stock Performance: The stock has been an underperformed this year generating negative year to date return of 25.49%. Investors have preferred to stay on the sideways for most of the year in MPW but over the past few days, the price has bounced back, primarily on the basis of upbeat result and outlook. Going forward, the company has set its policies and course of action clear looking to achieve broader customer base and increased penetration. We therefore recommend ‘Speculative Buy’ in the stock at the current market price of $0.200.

Class 

Growing demand of Cloud Solutions: Class Limited (ASX: CL1) posted strong revenue and share growth for the financial year 2018. Operating revenue was up 18% at $34.0 Mn whereas Net profit after tax surged 9% to $8.7 Mn during the year.  Growth in billable accounts and Class Portfolio has been encouraging in particular during the FY18. As on 30 June 2018, Class had a total of 169,413 billable accounts compared to 143,944 in FY17. Class Portfolio continued to grow with 5,949 billable accounts as on 30 June 2018. Class declared a fully franked dividend for FY18 of 2,5 cents, payable 17 September 2018.

Revenue Growth (Source: Company Report)

The company has consistently posted good margins with Net margin for the year at 25.6% compared to the industry average of 16.7%. Going ahead, the major reforms in the SMSF and wealth industry would work in favor of the company. Further, reporting complexities would generate the need of cloud solutions, a strong forte of Class Limited.

Stock Performance: The stock has generated negative YTD return of 29.57%. The price has respected its long-term support level of $1.869(on closing basis) and short-term support level of (previous 5 trading sessions) $1.953. Last Financial year performance and the outlook seem largely in favor of the company going forward. We therefore maintain ‘Hold’ in the stock at the current market price of $2.040 (up 3.8% on September 17, 2018).
 

Redbubble 

Sustainable Business Model: Redbubble Limited’s (ASX: RBL) shares this year have been largely driven by increased base of unique customers, selling artists and rising product/fulfillment capability. During the year, RBL has expanded into new geographies with North America being the top contributor and share of Europe rising.

Geographic Contribution (Source: Company Reports)

There has been an increase in the site visits by 37.4% to 258.8 Million, of which mobile visited contributed 54.2% of total visits for the full year. On the valuation front, the company is still in red with negative margins and ROE. However, we think that growth witnessed by the company on the key metrics front would eventually reflect in the revenue and all the way to bottomline.
Stock Performance: The stock has generated year to date return of 6.31%, indicating the optimism investors have around the company. The company managed to contain the total cash outflow during the year at $6.6 Million compared to $14.2 Million in FY2017. The closing cash balance as on 30 June 2018 was $21.3 Million. We believe that the company is witnessing better unit economics which would positively impact the GPAPA growth rates thereby pushing the revenue further. We therefore recommend ‘Speculative Buy’ in the stock at the current market price of $1.650 (up 3.125% on September 17, 2018).
 

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