Mach7 Technologies Limited

M7T Details

This report is the full version of the report published on 20 May 2022 at 3:55 PM GMT

Latest Updates: Mach7 Technologies Limited (ASX: M7T) offers comprehensive enterprise imaging solutions via its two segments: the sale of software licences and professional services.

• On 12 May 2022, Director Robert Bazzani purchased ~43,800 shares at ~$0.570 (per share) in M7T.
• As of 11 May 2022, JM Financial Group Limited and No Plan B Pty Ltd hold ~36.69 million fully paid ordinary shares each, respectively, in M7T.

Q3FY22 (ended 31 March 2022) Results:

• M7T witnessed robust momentum in sales orders from current & existing customers, and reseller partners and posted a TCV (total contract value) of ~$4.4 million in Q3FY22.
• M7T has partnered with AdvaHealth to expand in Australia and New Zealand and with Althea to increase the eUnity Enterprise Viewer solution sales in Europe.
• Contracted annual recurring revenue (CARR) amounted to ~$16.8 million in Q3FY22 versus ~$15.8 million in Q4FY21.

Half-Yearly Trend of Increase in Sales Orders; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological shifts, supply bottlenecks and partner issues in distribution, regulatory changes, and peer competition.

Outlook:

• M7T continues to target ~$30 million in TCV from the sales orders delivery in FY22. It expects gross margins to be better as it develops 3D capability in-house.
• Positive revenue growth is expected to generate a positive EBITDA in 2HFY22.

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 M7T gave a negative return of ~16.21% in the past three months and a negative return of ~30.33% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.510 - $1.120. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its negative bottom line, negative ROE, and continuing COVID-19 disruptions. For this purpose of valuation, a few peers like Volpara Health Technologies Ltd (ASX: VHT), Alcidion Group Ltd (ASX: ALC), PainChek Ltd (ASX: PCK) have been considered. Considering the current trading levels, growth in partner network, new contract wins, expectations of a positive EBITDA in 2HFY22, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.585, as of 20 May 2022, 11:39 AM (GMT+10), Sydney, Eastern Australia. 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.

M7T 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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