Spirit Technology Solutions Limited (ASX: ST1) 

ST1 is an information technology and telecommunication (IT&T) services company based in Australia. The company's principal activities include telecommunication, cloud, managed IT, and cyber security services to small and medium-sized businesses.

Recommendation Rationale – SELL at AUD 0.055

• Financial Performance: In FY23, revenue from operations declined by 6% YoY largely associated to nearly AUD 17.2mn decline in revenue from managed services (IT&T). Underlying EBITDA went down by 29% YoY in FY23, affected by operating cost pressures in context current inflationary environment.
• Outlook: ST1 sought target acquisitions to advance further in the Secured, Sustainable, and Scalable space. Moreover, the new high-growth AI offered a potential to gain competitive edge..
• Emerging Risks: Inflationary pressure on operating costs, high competition in IT&T services, declining barriers to entry, and potential failure of business restructuring are key risks.
• Technical Commentary: On the daily chart, ST1 prices are trading below the horizontal trendline support zone. Moreover, the momentum oscillator RSI (14-period) is showing a reading of ~80.29 level. However, the prices are trading above trend-following indicator 21-period SMA, which may act as a support level. An important support level for the stock is placed at AUD 0.045 while the key resistance level is placed at AUD 0.063.

ST1 Daily Chart

Considering the current trading levels, decline in revenue from managed services (IT&T), increasing operating costs, other key risks associated, technical commentary, etc., it is prudent to exit from the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current price of AUD 0.055, as of October 9, 2023, at 11:21 AM AEDT.

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 9 October 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

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