rhipe Limited

RHP Details

rhipe Limited (ASX: RHP) provides cloud-based licensing programs and services to software vendors in the Asia-Pacific region. In the software licensing models, the company has specialised in supporting the vendor in their adoption of the Cloud. Further, it has extended its offerings to include additional subscription licensing programs with traditional programs like Microsoft Dynamics and other Microsoft volume license programs (LSP/LAR). The company has a market capitalization of ~AU$256.91 million as on 31^st March 2021.

Result Performance – For the first half ended 31 December 2020 – (H1FY21)

For the first half ended 31 December 2020, the revenue increased by 15% to $30.5 million versus $26.6 million in H1FY20 driven by licensing revenue that grew by 7% to $21.6 million over pcp, largely impacted by the pandemic at partner base and changes in software vendor incentives. Revenue from services and support activity jumped by 40% to $9 million in H1FY21 over pcp, led by revenue earned by Parallo, which grew 22%. The Reported EBITDA of the company for the period increased by 17% to $8.2 million versus $7.0 million in H1FY20. Finally, profit after tax increased by 17% to $3.8 million versus $3.2 million in H1FY20.

Key Data (Source: Company Reports)

Recent Updates

On 11 March 2021, the company advised that the Company’s Employee Share Trust expects to acquire fully paid shares on market to satisfy an allocation of share to participants in the long-term incentive plan.

On 16 February 2021, the company announced the dividend distribution details. The distribution amount is set at AU$0.015 per share with ex-date as 19 February 2021 and payment-date of 22 March 2021.

As per the release dated 10 February 2021, the company notified that 465,839 ordinary shares will be released from escrow on 28 February 2021.

Outlook:

With reseller base software and services business model across countries, the company was resilient to the impact of the pandemic and reported strong financial results in H1FY21. The same growth is expected in H2FY21 driven by increased investment in its CSP capabilities which has been driving the growth of the company. Going forward, the company’s recent entry into the Japan market which lags in cloud penetration offers good growth opportunities for the company. The company is expecting FY21 operating profit of ~$17.5 million, which represents a growth of ~27% over the corresponding period last year. The company has substantial cash that came in at $57.5 million on 31 December 2020 versus $60.9 million at 30 June 2020, following the payment of $3.2 million fully franked dividend as well as a $4.3 million payment for Parallo acquisition that was completed on 30^th September 2020.  This acquisition is expected to support the expansion of partners’ Microsoft Azure competencies at the customer front.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has been down trending which is evident from lower-high and lower-low. The technical indicator RSI with a reading around 36 suggests that the stock is near oversold zone thereby limiting scope for steeper downside.

Going forward, the stock if rebounds then it may find good resistance around 20 periods SMA of $1.77 whereas support could be around the previous low of $1.52.

Stock Recommendation:

The stock has witnessed a fall of ~17.2% in 3 months and over the last 6 months, it has decreased by ~18.7%. In line with this, the stock reported a fall of ~21.8% in 9 months while increased by ~1.29% in 1 year. The stock has a 52-week low and high of AU$1.360 and AU$2.350, respectively and is currently trading below the average of 52-week high-low range.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of high single-digit (in % terms). We believe the company can trade at a slight premium to EV/Sales Multiple (NTM)  (Peer Median) considering its decent liquidity position which could help it in achieving long-term growth objectives.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of AU$1.560 per share, down by 2.195% on 31^st March 2021.

RHP Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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