Dragontail Systems Limited

New Debt Facility: Dragontail Systems Limited (ASX: DTS) is a small-cap Australia-based technology company with the market capitalisation of circa $39.82 Mn as of July 18, 2019. The company has developed the Algo Dispatching System (Algo), which manages the entire restaurant order and delivery transaction, including order receipt, kitchen prioritisation for meal preparation, dispatch and route management, and customer delivery.Recently, the company, via a release dated 16th July 2019 announced that it has secured debt funding of A$4.3 Mn from Alceon Liquid Strategies Pty Ltd, which is the Australian-based shareholder of the company. Alceon Liquid Strategies Pty Ltd is a member of the Alceon Group and manager of the Alceon High Conviction Absolute Return Fund.

Adding to that, it was mentioned that debt funding is for a 2-year term. Moreover, Loan has been drawn down on 16th July and it provides the company with the working capital it needs to continue the aggressive launch of its products among its global, Tier 1 customer base and to pursue significant new opportunities. The company made an announcement via release dated 7th June 2019 that it has installed more than 250 new stores in the month of May 2019. It was also stated in the release that this milestone has brought the company's total installations to over 1,500 stores.

In another update, the company via release dated 29th May 2019 stated that it has concluded the nationwide launch of its Artificial Intelligence quality control Camera in more than 800 stores throughout Australia and New Zealand (or ANZ). Adding to that, the quality control Camera was installed at Domino's Pizza stores as the "DOM Pizza Checker", which is set to drastically improve product quality and consistency across all Domino’s stores in ANZ. The company has developed two revolutionary technologies the Algo and QT camera over the last five years that both optimise the quick service restaurant industry, by focusing on delivering cost savings, and new operating practice, which enhances the entire business performance. The company reported revenues of US$ 1,074,676 in FY18 as compared to US$ 306,620 in FY17, representing a significant rise of 250.5% on a Y-o-Y basis. Although, the company posted a loss for the year of US$ 7,041,539 in FY18 against US$4,659,059 in FY17.

 
 
 

Consolidated Profit & Loss (Source: Company Reports)

What to Expect: As per the Annual Report 2018, the group would continue the development and commercialisation of the Algo System and the QT Camera for customers in the field of quick service restaurants. It was also mentioned thatDragontail Systems Limited is expanding its Australian operation and has been in the process of hiring additional developers and data scientists based in Melbourne and Brisbane.

Stock Recommendation: The current ratio of the company stood at 6.06x in FY18 against the industry median of 1.64x. This indicates that, the company is in a good position to meet its short-term obligations in comparison to the broader industry. Additionally, the company has decent liquidity levels which might help it in making deployments towards the business objectives.

Coming to the stock’s past performance, it produced returns of -8.57% and -20.00% in the time span of one month and three months, respectively. As per ASX, the stock is trading slightly closer towards its 52-week lower level. Further, the company reported improved negative margins along with negative ROE over the past few years. Hence, considering the mixed scenario and looking at the current trading level, we have a watch view on the stock at the current market price of A$0.165 per share (up 3.125% on 18th July 2019) and suggesting that investor should wait for few more catalysts to the drive the stock. 

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