Spirit Technology Solutions Ltd

ST1 Details

FY21 Result Highlights: Spirit Technology Solutions Ltd. (ASX: ST1) offers IT and telecommunication services that include enterprise-grade managed Wi-Fi, cybersecurity, networking, disaster recovery, online backup, and Smart ISDN solution for cloud transition in Australia.

• The company has recorded revenue growth of 200% year on year to $104.5 million in FY21. The revenue increased by 37% to $60.5 million in H2FY21, compared to $44 million H1FY21, driven by the strong demand from the SMB segment.
• ST1 has reported an increase in underlying EBITDA by 208% to $11.5 million in FY21, compared to $3.7 million in FY20.
• ST1 has recorded a sales total contract value of $31.8 million in Q4FY21, demonstrating organic growth and demand for the Spirit products.
• The company recorded Recurring revenue of $27.2 million in H2FY21, up by 33% from the first half of FY21.
• The cash position of the company stood at $24.2 million, and net debt at $1.5 million as of 30 June 2021.

Underlying EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Supply Side Challenges- The company could face challenges in the IT hardware supply chain and availability of skilled labour that might have an impact on company financials.
• Impact of COVID-19 Pandemic- The company faced volatility in the market, which is having cost pressure due to lockdown restrictions.

Outlook: For FY22, the company expects its revenue and other income to be in the range of $150- $155 million. the underlying EBITDA for FY22 is expected to be around 12.5% to 13% of revenue.

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:

The stock of ST1 is trading below its average 52-weeks' levels of $0.250-$0.450. The stock of ST1 gave a positive return of ~7.27% in the past one week and a negative return of ~21.33% in the past one year. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact and technology advancement risk. For the purpose of valuation, peers such as 5G Networks Ltd (ASX: 5GN), Aussie Broadband Ltd (ASX: ABB), MNF Group Ltd (ASX: MNF), have been considered. Considering the strong cash position, increasing demand in the SMB segment and strategic integration, optimistic outlook, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.2925, as on 16 August 2021, 3:39 PM (GMT+10), Sydney, Eastern Australia.

ST1 Daily Technical Chart, Data Source: REFINITIV

Osteopore Limited 

OSX Details

Changes in Board of Directors: Osteopore Limited (ASX: OSX) is a medical technology company specialising in the production of 3D printed bioresorbable implants used in surgical procedures to assist with the natural stages of bone healing. As per a recent announcement, Brett Sandercock, Non-Executive Director of the company, has resigned from the company. Further, the company appointed Mark Leong as Chairman and Non-Executive Director.

Q2 CY21 Financial Performance:

• The company has achieved revenue of $301,237 in Q2 CY21.
• Osteopore has been granted a European Patent for 'Smart' 3D Biomimetic Scaffolds to improve implant performance, improving the performance of its regenerative implants.
• During the quarter, the company reported its receipts from customers was $245k.
• The cash position of the company stood at $7,123,996 as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant impact due to the COVID-19 pandemic as the demand was drastically down, and still, the uncertainty prevails.
• Patent Risk- The company is exposed to patent risk; any delay could impact the company’s operations.

Outlook:

• Based on market research by CETAS Healthcare, the company asserts that the serviceable available market value of the incremental access afforded by the extension exceeds $115 million.
• In Houston, Texas, the Methodist Hospital has shown an interest in trialling Osteoplugs in the plug and strip configurations in cranial procedures.
• In addition, successful clinical trials and documented clinical research will contribute to establishing a robust basis for growing demand into the future.

Stock Recommendation: Recently, Osteopore's CE Mark was extended to include seven new designs, all sizes of Osteoplug, Osteomesh and Osteostrip, and extended product shelf-life that indicates more patients will have access to the benefits. The stock of OSX is trading below its average 52-weeks' levels of $0.360-$0.735. The stock of OSX gave a positive return of ~6.66% in the past one weak and a negative return of ~34.95% in the past one year. On a TTM basis, the stock is trading at a price-to-book value multiple of 3.5x, lower than the industry median (Healthcare Equipment and Supplies) of 4.2x, implying undervaluation. Considering the decent balance sheet, grant patent rights for ‘Smart’, economic recovery, valuation on TTM basis, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.400, as on 16 August 2021.

OSX Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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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