IPH Limited 

IPH Details

Acquisition of Applied Marks: IPH Limited (ASX: IPH) is mainly involved in providing a wide range of IP services and products. On 1^st July 2021, the company announced that it has acquired a leading online automated trademark platform, Applied Marks Pty Ltd. This acquisition has strengthened the company’s position in the local Australian trademarks services market.

Key Takeaways from H1FY21 Results:

• Rise in Underlying EBITDA: For H1FY21, the company reported an underlying EBITDA of $61.7 million, up 2% on pcp.
• Rise in Operating Cashflow: Operating Cashflow for H1FY21 stood at $52 million, up 39% on pcp.
• Decline in Statutory NPAT: Statutory NPAT decline by 1% to $26.8 million, due to increase in non-cash amortisation of intangible assets related to the Xenith IP acquisition.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Risk:

• Stiff Competition: The company operates in a highly competitive environment wherein its performance is dependent on several factors like price, service, innovation, and the ability to provide the customer with an appropriate range of IP services in a timely manner.
• Regulatory Risks: IPH is subject to significant regulatory and legal oversight. Further, its service offerings are subject to changes to government legislation and regulation.

Outlook: Looking ahead, the company is targeting continued growth in WiseTime sales and expansion of its functionality. Notably, the company has increased its operational leverage to deliver further margin expansion when markets improve.

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: The of IPH has provided a return of 37.37% in the last six months and 10.88% in the last three months. The stock is currently inclined towards its 52-weeks high price of $8.750. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with a correction low single-digit (in % terms). We believe that the company can trade at a slight premium considering the decent underlying performance in H1FY21, improved liquidity position, and also taking into account that the company has been commanding a premium in the past 3-years over its peer average. We have taken peers like Countplus Ltd (ASX: CUP), Kelly Partners Group Holdings Ltd (ASX: KPG), and QANTM Intellectual Property Ltd (ASX: QIP). Considering the company’s decent performance in the last six months, current trading level, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $8.05 as on July 16, 2021, 11.50 AM (GMT+10), Sydney, Eastern Australia).

IPH Daily Technical Chart, Data Source: REFINITIV

Service Stream Limited

SSM Details

Market Update: Service Stream Limited (ASX: SSM) is an essential network services company mainly involved in providing integrated end-to-end asset life-cycle services across essential infrastructure networks within the Telecommunications and Utilities sectors. In a recent market update, SSM’s Board assured that the fundamentals of the company’s business model are strong, supported by growing and supporting a strong organic business development pipeline. In the update, the company also informed that it is focused on securing additional growth opportunities across its core long-term contract base and maintaining a flexible and scalable resourcing model, and proportionate Group cost base.

H1FY21 Results Highlights:

• Decline in Revenue: For H1FY21, SSM reported revenue of $409.9 million, down by 17.7% on pcp, mainly due to lower Telecommunications segment revenue, which was impacted by the conclusion of nbn construction operations in FY20 and a step down in activation volumes.
• Decline in EBITDA from Operations: EBITDA from operations stood at $40.2 million, down by 30.8%.
• Rise in Net Cash: Net cash at the end of H1FY21 stood at $10.5 million, up $14.4 million reported at the end of 1HFY20.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: SSM is exposed to the risks of COVID-19 pandemic as it could cause increased restriction of workforce movement, and reduction in demand from the company’s customers, which may impact the company’s operations.
• Change in Technology: The rate of adoption of new technology by the company’s customers, such as 5G technology, can also provide variability against expected future earnings.

Outlook: For FY21, SSM expects 10% revenue growth in Comdain Infrastructure, underpinned by significant contract wins. SSM expects a lower contribution from its Telecommunications segment, mainly due to the conclusion of nbn construction operations in FY20 and a step down in activation volumes. SSM expects EBITDA from Operations in H2FY21 to be in-line with the first-half result. The company intends to release its FY21 full-year results on 26 August 2021.

Valuation Methodology: EV/EBITDA  Multiple Based Relative Valuation (Illustrative)

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 six months, the stock has corrected by 40.57% and is trading lower than the average 52-week price level band of $0.830 and $2.470, offering a decent opportunity for accumulation. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We have taken a slight premium to its peer average, considering improved net cash position, rise in current ratio and also taking into account that the company has been commanding a premium in the past 3-years over its peer average. We have taken peers like Telstra Corporation Ltd (ASX: TLS), Chorus Ltd (ASX: CNU), Hubify Ltd (ASX: HFY), etc. Considering the expected  revenue growth in Comdain Infrastructure, modest outlook, current trading level, and valuation, we give a “Buy” rating on the stock at the current market price of $1.005 as on July 16, 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia).

SSM Daily Technical Chart, Data Source: REFINITIV

Aeris Environmental Ltd

AEI Details

March Quarter Highlights: Aeris Environmental Ltd (ASX: AEI) is involved in the manufacturing and marketing of proprietary, environmentally friendly technology that drives measurable improvements in asset performance and sustainability. For March 2021 quarter, the company reported total revenue of $1.04 million, taking total Year-to-date (YTD) revenue to $6.15 million. For the quarter, the company reported cash receipts of $1.9 million. As at 31 March 2021, the company had cash at the bank of $12.36 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Latest Developments:

• Near-term Establishment of WOFE: The company is in the process of establishing a Wholly Owned Foreign Entity (WOFE) in China, which will allow it to qualify for both State and Federal contracts in China.
• Launched “Safe Environments – Clean Green Hygienic” Programme: AEI recently launched “Safe Environments – Clean Green Hygienic” Programme, which delivers highest levels of independently-tested, environmentally-conscious products, with long-lasting residual efficacy and, importantly, chemical inter-compatibility.
• Mould Remediation: AEI is repositioning a range of mould remediation products to focus on differentiated claims and capabilities.

Key Risk:

• COVID-19 Uncertainties: Due to COVID-19 pandemic, much of built environment in AEI’s global markets have been essentially ‘locked down’ and offline in terms of occupation and usage. This is impacting the company’s financial performance.
• Foreign Currency Risk: The company is exposed to the risks associated with the fluctuations in the exchange rates of foreign currencies.

Outlook: The company continues to invest in the development of several new products and packaging presentations, in response to customer and distributor demands. It is expected that the establishment of WOFE in Shanghai will accelerate the commercialisation of the Company’s products in that market. The company believes that it is well capitalised to roll out important strategic initiatives that support growth potential.

Stock Recommendation: The stock of AEI has corrected by 21.73% in the last three months and is trading lower than the average 52-week price level band of $0.140 and 0.690, offering a decent opportunity for accumulation. On a TTM basis, the stock is trading at an EV/Sales multiple of 1.8x, lower than the industry median of 3.1x, thus seems undervalued. Considering the expected benefits from the establishment of WOFE in Shanghai, recently launched “Safe Environments – Clean Green Hygienic” Programme, rise in current ratio, modest outlook, current trading level and valuation on TTM basis, we give a “Speculative Buy” rating on the stock at the current market price of 0.175, down by ~2.778% as on 16 July 2021.

AEI 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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