ELMO Software Limited

ELO Details

1HFY22 (Ended 31 December 2021) Highlights: ELMO Software Limited (ASX: ELO) offers cloud-based solutions for HR, payroll, and expense management to mid-market companies and small businesses across the UK, Australia & New Zealand. 

• ELO has a total addressable market (TAM) opportunity of ~$10.6 billion from the mid-market segment and ~$2.2 billion from the small businesses.
• The subscription revenue increased from ~$42.1 million in 1HFY22 to ~$29.8 million in 1HFY21, up by ~41.1% on pcp leading to ~40.8% Y-o-Y growth in total revenue.
• The Lifetime Value (LTV) of customer base expanded across small business and the mid-market segments and rose to ~$710 million as of 31 December 2021, up by ~$155 million as of 30 June 2021.

Growth Trajectory of ARR from 1HFY18-1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological innovations, cyber security attacks, regulatory reforms, and peer competition in the industry.

Outlook:

• ELO expects ARR of ~$107.0 - ~$113.0 million and revenue between ~$91.0 - $96.0 million in FY22.
• The company is well capitalised and expects to achieve cashflow break-even within 2HFY23.
• In the UK, ELO’s acquisitions are delivering robust business performance and provide a strong platform to grow its market share in the region.
• ELO has launched its small business solution - Breathe in Australia and New Zealand market and now plans to accelerate activities in the region during FY22.
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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 ELO gave a negative return of ~22.33% in the past three months and a negative return of ~25.15% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $3.620. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering the negative ROE, mounting losses, integration risks, and cyber security risks. For this purpose of valuation, a few peers like Nearmap Ltd (ASX: NEA), Iress Ltd (ASX: IRE), Infomedia Ltd (ASX: IFM), and others have been considered. Considering the current trading levels, improved operating leverage, growth in ARR and customers, decent long-term outlook, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $3.720, as of 4 March 2022, 12:06 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ELO Daily Technical Chart, Data Source: REFINITIV  

Airtasker Limited

ART Details

Growth in GMV Backed by Customer Acquisitions in 1HFY22 (31 December 2021): Airtasker Limited (ASX: ART) offers a community marketplace for a variety of services such as home cleaning, computer, and IT support, graphic design and video, and administration assistance, among others in Australia.

• The revenue rose to ~$13.9 million in 1HFY22, up by ~10.4% YoY from ~$12.6 million in 1HFY21.
• The GMV volume growth recovered from the COVID-19 impacts in Q1FY22 and increased by ~39% QoQ to ~$48.6 million in Q2FY22 on the back of customer acquisition from October to December 2021.
• The marketplace demand for local services has been increasing with the average task price rising to ~$255, up by ~24% on pcp in Q2FY22.
• The 1HFY22 gross profit rose by ~9.5% on pcp in 1HFY22.
• The US marketplace witnessed growth in posted tasks, up by ~71% QoQ in Q2FY22.
• In the UK, GMV rose by ~121% YoY in Q2FY22 backed by the positive demand and supply situation of the marketplace.

Growth in Revenue & Gross Profit from 1HFY21 to 1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of increasing taskers, growing task pricing, and margins. It risks the availability and mobility of taskers and demand for services due to COVID-19 restrictions and lockdowns.   

Outlook:

Outlook Highlight; (Analysis by Kalkine Group)

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 ART gave a negative return of ~29.78% in the past three months and a negative return of ~32.99% in the past six months. The stock is currently trading near its 52-weeks’ low level of $0.605. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering the continuing negative EBITDA, and net loss, planned increase in direct marketing investment, and product development initiatives in the UK and the US. For this purpose of valuation, a few peers like Seek Ltd (ASX: SEK), REA Group Ltd (ASX: REA), Domain Holdings Australia Ltd (ASX: DHG) have been considered. Considering the low trading levels, increase in GMV, customer acquisitions, ongoing expansion in the UK and US marketplace, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.660, as of 4 March 2022, 12:02 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ART Daily Technical Chart, Data Source: REFINITIV  

Spirit Technology Solutions Limited

ST1 Details

Achieved Diversification & Growth in Top-Line Results in 1HFY22: Spirit Technologies Solutions Limited (ASX: ST1) provides cloud services, cyber security services, and managed IT services while operating as an IT and telecom (IT&T) company in Australia.

• The total revenue increased from ~58% YoY from ~$44.0 million in 1HFY21 to ~$69.6 million in 1HFY22 due to acquisition contributions and growth in the cyber security services revenue (~5% YoY) and voice services revenue (~7% YoY).
• ST1 posted a positive underlying EBITDA of ~$4.2 million during a seasonally slower Q1FY22 and amidst COVID-19 lockdowns in 1HFY22. This EBITDA excluded ~$2.5 million of profit from the consumer asset sale.
• ST1 recorded notable customer wins across healthcare, BFSI, services, and mining sectors while forging ahead into mid-market and corporate segments.
• The NPAT declined by ~99% on pcp in 1HFY22 due to scale up costs, operating expenses, and wage inflation.
• The company has expanded its geographical footprint and product range with the acquisitions of Intalock and Nexgen and continues to invest in technology solutions for workplaces.

Growth in Recurring Revenue from 1HFY21-1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of COVID-19 restrictions and business closures, rising wage inflation, and shortages in chip supply leading to higher hardware costs.

Outlook:

• ST1 is implementing a strategy to shift focus from fixed wireless assets towards digital solutions and achieve sustainable recurring revenue
• ST1 expects to deliver revenue in the order of ~$75 million in 2HFY21 and ~$140 million for FY22.
• The company is planning for a wider range of restructuring initiatives while transitioning to Spirit 2.0 plan and expects an EBITDA margin in the range of ~6%-7% in FY22.
• The company is progressing with the integration of Nexgen and planning to identify future acquisition targets across B2B Telco and Cloud.

Valuation Methodology: EV/EBITDA 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 gave a negative return of ~36.73% in the past three months and a negative return of ~35.41% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $0.155. The stock has been valued using the Enterprise Value to EBITDA-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/EBITDA multiple, considering the continuing impacts of COVID-19, a decline in Managed IT services revenue, and NPAT, and an uptick in the debt-to-equity ratio in 1HFY22. For this purpose of valuation, a few peers like Aussie Broadband Ltd (ASX: ABB), Symbio Holdings Ltd (ASX: SYM), TPG Telecom Ltd (ASX: TPG), and others have been considered. Considering the current trading levels, growth in underlying revenue, new customers added, expanded footprint with the recent acquisitions, decent outlook, and indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.155, down by ~8.824% as of 4 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ST1 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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