Appen Limited

APX Details

Shareholder’s Notice: Appen Limited (ASX: APX) is engaged in developing high-grade human automated datasets for Artificial Intelligence and Machine Learning applications. In a recent update, the company informed that State Street Corporation and subsidiaries, have ceased to be a substantial shareholder of APX, effective from 18 April 2022.

A Quick Look at FY21 Key Results:  

• APX remains on track to benefit from an increase in non-ad-related Global projects and a substantial rise in new business in China. 
• In FY21, the company witnessed an increase of 21% year over year in New Markets due to product-led growth, robust performance in China, and a diversified customer base. 
• From 1QFY20 to 4QFY21, revenue in China increased at a compound rate of 56%, thanks to the strengthened relationship with China’s leading technology companies and new customer wins. 
• The company declared a full-year dividend of A 10.0 cps, unchanged from last year.  

Key Results Highlights; Analysis by Kalkine Group  

Key Risks: The company faces the risk of technological changes, geopolitical tension, COVID-19 uncertainties, foreign currency fluctuation, stiff competition from, and integration synergies from the recent acquisitions.

Outlook: Focusing on accomplishing growth outside APX’s global customers, the company is now aiming at a more than 35% compound annual revenue growth rate from non-global customers going forward. For FY26, the company aims to achieve a minimum double of FY21 revenue, with an EBITDA margin of 20%. APX will hold an AGM on 27 May 2022. 

Valuation Methodology: P/E 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 the company has been corrected by ~39.87% in the past six months. Currently, the stock is trading close to its 52-week low level of A$6.08. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers, considering a rise in top-line, increasing revenues from China, robust customer base, etc. For the purpose of valuation, peers such as Infomedia Ltd (ASX: IFM), Data#3 Limited (ASX: DTL), and Iress Ltd (ASX: IRE) have been considered. Considering acquisition synergies, decent liquidity position, growth in New Markets business, current trading levels, indicative upside in the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $6.63, down by ~1.339% as on 22 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

APX 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. 

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.

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