Stocks’ Details
 

Over the Wire Holdings Limited

 
Revenues Up ~49% Year Over Year: Over the Wire Holdings Limited (ASX: OTW) is involved in the providing telecommunications and cloud-based IT solutions to corporate clients. Recently, the company announced the issuance of 32,648 ordinary shares pursuant to the terms of OTW Employee Share Plan. With this issue, total number of ordinary shares quoted on ASX stands at 51,639,931.
 
FY19 Financial Takeaways for the Period ended 30 June 2019: The company reported revenue of $79.6 million, an increase of 49% on a year over year basis, primarily on the back of overall organic growth of 15%. The company reported EBITDA of $20.1 million, up 64% on a year over year basis. NPAT stood at $10.1 million, an increase of 83% on a year over year basis. Customer retention ratio at the end of FY19 stood at 96%. The company’s Cloud/Managed Services revenue stood at $23 million, up 217% on y-o-y basis. EPS in FY19 increased by 64% on y-o-y basis to 20.7 cents per share.
 

FY19 Key Highlights (Source: Company Reports)
 
What to Expect: The company remains on track to pursue its strategic initiatives and continues to generate positive operational cash flow along with a robust balance sheet. For the coming quarters, the company is well-positioned to deliver organic growth and pursue further accretive acquisitions.
 
Valuation Methodology: Price to Earnings Multiple Approach
 

Price to Earnings Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of OTW is trading at $4.39 with a market capitalization of ~$226.7 million. At the current market price, the stock is quoting close to the average of its 52-week trading range of $3.750 to $5.450. As on 29^th January 2020, the stock has a P/E multiple of 21.25x (on TTM basis) and an annual dividend yield of 0.74%. Considering the aforesaid facts, we have valued the stock using one relative valuation method, i.e., Price to Earnings Multiple. For the purpose, we have taken the peer group – Class Ltd (ASX: CL1), Citadel Group Ltd (ASX: CGL), Data#3 Ltd (ASX: DTL), etc., and arrived at a target price offering lower double-digit upside (in % terms). Hence, looking at the current trading levels and business prospects, we recommend a “Buy” rating on the stock at the current market price of $4.39 as on 29^th January 2020.
 

Splitit Payments Ltd

 
Splitit Payments Partners with Stripe: Splitit Payments Ltd (ASX: SPT) is engaged in providing credit card-based instalment solution to businesses and merchants. On 28^th January 2020, the company announced that it has inked a partnership deal with Stripe, a technology company that develops economic infrastructure for the internet. The partnership deal will witness integration of SPT’s solution with Stripe Connect, to streamline merchant onboarding & boost merchant experience.
 
Other Recent Updates: The company has recently announced that 5,368,699 fully paid ordinary shares were released from mandatory escrow on 22^nd January 2020. In another update, Splitit PaymentsLtdannounced the appointment of Mr. Brad Paterson as Managing Director, along with Mr. Jan Koelble who has joined as an Independent Non-Executive Director.
 
September quarter Highlight: In Q3FY19, the company stated that total active merchants came in at 624, an increase of 97% on a year over year basis. Total customers reached 235,000 from 197,000 in Q2 of FY19. Merchant Transaction Volume stood at US$30.5 million, up 100% on y-o-y basis.
 

Key Performance Metrics (Source: Company Reports)
 
Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week low-high of $0.305 and $2.00, respectively, proffering an opportunity for accumulation. The company is well-funded to accelerate merchant acquisition and partnerships in the near term. The company will continue sourcing unique customers and boosting transaction volumes, to aid growth in merchant fees. On TTM basis, the stock is trading at a price/Book multiple of 4.0x, lower than the industry average (Software and IT Services) of 4.6x. Considering the returns, trading levels and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.660 as on 29th January 2020.
 

Xref Limited

 
Credit Sales Up by ~23% in Q1FY20: Xref Limited (ASX: XF1) is engaged in developing human resources technology, which automates the candidate reference process for employers. On 22^nd January 2020, the company announced that FIL Limited and its related bodies corporate, one of the substantial holders of the company, has reduced its voting power from 8.14% to 7.14%. 
 
Key Takeaways from September Quarter: During the quarter ended 30^th September 2019, the company reported total credit sales of $2.46 million, an increase of 23% year over year.Credit usage reached $2.24 million, an increase of 32% on 1QFY19.  Cash receipts during the quarter stood at $3.53 million. Net cash outflow in 1QFY20 came in at $1.946 million. The company exited the quarter with a cash balance of $5.245 million.
 

Sales & Credit Usage (Source: Company Reports)

Stock Recommendation: As per ASX, market capitalization of the company stood at ~$60.54 million, as on 29^th January 2020. The stock is trading close to its 52-week low of $0.310, proffering an opportunity for accumulation. The company is on track to unveil new products and features and is in a good situation to leverage the growth opportunities. Considering the returns, trading levels and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.34 on 29th January 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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