Appen Limited

 
EBITDA Margins Contraction, However Robust “Content Relevant” Revenue Growth: Appen Limited’s (ASX: APX) EBITDA for the 1H2018 grew by around 100% on the PCP and came in at $25.58 Mn. This was on the back of strong “Content Relevant” revenue garnered from the acquisition of “Leapforce” & also the incremental work from existing customers. However, at the same time EBITDA margins contracted by 40 bps and were reported at 16.8% due to change in the language resource mix of the work during the period. The underlying NPAT was clocked at $17.8 Mn up by 119%. This was on account of the reduction in effective tax rate from 30.3% to 21.2% due to the availability of credit on tax paid upon employee share issue.
The firm has recently upgraded its earnings estimate for the FY ending 31st December 2018 stating that the underlying EBITDA for the full year is expected to be in the range of $62-65 Mn, however the previous guidance was in the range of $54-59 Mn. These revised earnings forecasts are on account of the growth in the monthly revenues from the existing projects & customers.

 
 
Key Financial Metrics (Source: Company Reports)
 
The company is continuously experiencing growth in the demand due to the need of data privacy. The firm’s new platform “Appen Connect” is slated to enhance the scalability & productivity. Moreover, the new customer wins in the technology sector could be the growth drivers. However, considering the phenomenal surge in the stock of about 65.43% from end of the year till date as on 4th of December 2018, we believe that the positives are already factored in the current market price & hence we advise a wait & watch view on the stock at the current market price of $13.57 (down 1.88 % on 5 December 2018).
 

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