Appen Limited

APX Details

Ceasing of Substantial Shareholders: Founded in 1996, Appen Limited (ASX: APX) is involved in developing high-grade human automated datasets for AI and machine learning (ML). Recently, the company announced that The Capital Group Companies, Inc. ("CGC"), and its related bodies corporate have ceased to be a substantial holder of the company, effective from 1 July 2021.

Issue of Shares: On 28 June 2021, as a result of the vesting of performance rights, the company issued 7,034 new fully paid ordinary, under section 708 of the Corporations Act. Notably, APX is subject to regular reporting and disclosure commitments.

Trading Update:

• YTD Revenue Status: At the end of April 2021, the company’s year-to-date revenue plus orders in hand for delivery for FY21 stood at ~US$260 million.
• Change to Reporting Currency: The company will change its reporting currency to US dollars from Australian dollars, beginning with the 1HFY21 results. The change is propelled by the point that over 90% of APX’s revenue and assets are in US dollars.

Sneak-Peek at FY20’s Key Results:

• Customer Wins: In 2020, the company yielded 136 new customers across a variety of sectors and data types, thanks to its higher investments in sales and marketing strategies.
• Increase in Number of Projects: In FY20, APX grew the number of projects by 34% across its top five customers, thus aiding new product developments.
• Higher Revenues from China: Revenues in China increased by 60% every quarter in FY20, thus expanding the company’s market share and delivering a robust base for future growth.
• Rise in ACV: As at 1 February 2021, APX’s Annual Contract Value (ACV) increased massively to US$124.4 million as compared to US$25 million reported in 2HFY19.

Annual Contracted Value Highlights; Analysis by Kalkine Group 

Key Risk: Rising expenses, foreign currency fluctuation risk, cyber-security risk, stiff competition from peers, stringent regulation, and loss of key customers are potential headwinds. 

Outlook:

• The company expects FY21 Underlying EBITDA to be in the range of US$83-90 million.
• For FY22, the company expects gross cost savings (before reinvestment) to be US$15 million.
• The company recently announced that it would release its H1FY21 (six months ended 30 June 2021) results on 26 August 2021.

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: Over the last three months, the stock has corrected by ~23.4% and is inclined towards its 52-weeks low price of $10.650, offering investors a decent opportunity for accumulation. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight discount to its peer median P/E (NTM Trading multiple), considering the decline in speech and image revenue, forex headwinds, change in customer preferences, and loss of any key customers due to COVID-19 led uncertainties. We have taken peers like Altium Ltd (ASX: ALU), TechnologyOne Ltd (ASX: TNE), Data#3 Ltd. (ASX: DTL). Considering the company’s decent performance in FY20, acquisition synergies, decent liquidity position, robust customer base, unveiling of a new organisational structure, modest outlook, current trading level, and valuation, we give a “Buy” rating on the stock at the current market price of A$12.730 down by ~0.703% as on 19 July 2021.

APX Daily Technical Chart, Data Source: REFINITIV 

Infomedia Limited

IFM Details

Becoming a Substantial Shareholder: Infomedia Limited (ASX: IFM) is involved in developing, designing, and supplying Software-as-a-Service & provision of data analytics solutions to the parts and service sector of the automotive industry. Recently, the company announced that Ellerston Capital Limited have become a substantial holder of the company, effective from 8 June 2021.

Completion of SimplePart Buyout:

• On 1 June 2021, IFM completed the acquisition of SimplePart, an US-based e-commerce platform, for an upfront consideration of US$24.5 million, plus an earn-out of up to US$20.5 million over a period of three years.
• The buyout was implemented on 4 May 2021. This strategic move of acquiring SimplePart enhances IFM’s SaaS platform and aids the company to offer aftersales e-commerce solutions to its world-wide customers and access a wider addressable market.
• The addition of SimplePart expands IFM’s core global offering and bolster its position to aid customers with an expanded range of market-leading service and data insights solutions.

1HFY21 Key Findings:

• Rise in NPAT: During the period, IFM’s net profit after tax (NPAT) stood at $9.33 million, up 3% from the prior corresponding period.
• Revenues in-Line: The group’s revenue was almost flat year over year to $47.69 million in 1HFY21. On the back of continuous investment in business development, IFM remains on growth impetus. Service revenue in 1HFY21 increased 9% pcp, post the rollout of numerous new contracts win in each region.
• Decent Balance Sheet: The company has a strong financial position with a cash balance amounting to $97.3 million, reflecting the robust cash generative nature of the business.
• Increase in Cashflow from Operations: Net cash from operating activities came in at $17.03 million in 1HFY21, up by 19% year over year, owing to improved collections and customer loyalty across global.

Past Performance; Analysis by Kalkine Group

Risk Analysis:

• COVID-19 Led Uncertainties: The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions with the lengthening of typical sales cycles and deferred purchases by customers.
• Stiff Competition: The company operates in a highly competitive environment, which is subject to ongoing significant changes, including business consolidations, new strategic alliances, market pressures, and regulatory and legislative pressures.
• The company is exposed to foreign currency fluctuation risks.
  

Outlook: For FY21, the company expects total revenue to be in the range of $95-$96 million and Cash EBITDA to be in the ambit of $19-$20 million for FY21.

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: On 24 May 2021, the company informed the market that CFO, Richard Leon, will be stepping down from his post after being connected to the company for a period of 5 years, post 24 August 2021. The stock of the company has corrected by ~19.67% in the past six months. Currently, the stock is trading below the average of its 52-week’s low and high level of $1.255 and $2.020, respectively. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at some discount as compared to its peer average, considering its supply chain disruption risk, increased costs and integration risk, foreign currency risk and strict regulatory approval, etc. For that purpose, we have considered peers such as Life360 Inc (ASX: 360), ELMO Software Ltd (ASX: ELO), Hansen Technologies Ltd. (ASX: HSN). Considering the decent liquidity position, rise in profits in 1HFY21, encouraging outlook, current trading levels, acquisition synergies, valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.470, up by ~1.030% on 19 July 2021.

IFM 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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