Zix Corp

Zix Corp (NASDAQ-GS: ZIXI) is a Software & Computer Services Company. The Company offers a continuous security experience via high-touch service and enterprise-quality technology.

Investment Highlights – Zix Corp – Speculative Buy at USD 7.42

• The Company has delivered decent improvement in financial year 2020 and expects further growth in financial year 2021, with higher revenue and adjusted EBITDA.
• In the last six months, the Company delivered a substantial return of ~22.44% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, the Price/Earnings multiple of Zix Corp is currently lower as compared to the corresponding multiple of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI is in the oversold zone and is supporting an upside move (around 15 level), which means the stock price could increase in the short term.

Key Risks

• Due to the impact of the covid-19 pandemic, the macro-economic uncertainties have increased and impacting the profitability of the Company.
• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.

Financial Highlights – Q4 and FY2020 (31 December 2020) (released on 25 February 2021)

• In the fourth quarter and financial year 2020, driven by an increase in recurring revenue and cloud revenue, the revenue increased by 14.9% and 26%, respectively.
• Driven by higher revenue, the profitability for the period improved. The Company reported higher EBITDA and managed to reduce net loss for the period.
• The Company reported a strong cash balance of $21,362,000 as on 31 December 2020 (31 December 2019: $13,349,000).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in the financial performance in the fourth quarter and financial year 2020. Both the revenue and profitability for the period improved, with higher liquidity and well-positioned balance sheet. In Q1 FY2021, the Company expects revenue to be in between $58.7 million and $59.8 million, reflecting growth of 12% to 14% compared to Q1 FY2020 data. Based on present visibility, ZIXI expects full-year revenue growth of 12% to 14%, with adjusted EBITDA of around $56.0 million. The Company expects expenses related to marketing, compensation and travel to increase in financial year 2021. Overall, the Company is in good position to deliver strong growth in near-term. The stock made a 52-week low and high of USD 2.84 and USD 10.37, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation on Zix Corp at the closing price of USD 7.42 (as on 1 March 2021), with a lower double-digit upside potential based on 14.26x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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