Appen Limited

APX Details

Acquisition to Expand Market Share: Appen Limited (ASX: APX) provides quality data solutions and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers and government agencies. Recently, the company has wrapped up the acquisition of a Singapore-based, global leader in mobile location and point-of-interest data, Quadrant Global Pte Ltd, which was announced on 26 August 2021.

• APX paid an upfront cash payment of US$25 million and a potential additional payment of up to US$20 million in Appen shares to be issued upon achieving revenue milestones in 2022 and 2023.
• The company added that the upfront cash payment was financed from existing cash reserves.
• As a result of the acquisition, APX would witness improvement in its data capabilities and product offering for existing customers and open new growth opportunities in the global location intelligence market.

1HFY21 Financial Summary:

• Small Decline in Revenue: During the half-year ended 30^th June 2021, the company witnessed a small fall of 2% in revenue to US$196.6 million because of lower Global Services revenue as global customers allocated resources to new, non-advertising projects in 1HFY21.
• Increase in Global Product Revenues: APX witnessed a growth of 15.2% in global product revenue to US$22.3 million, backed by the investments of global customers in new AI use cases supported by APX’s annotation platform and tools. The company’s performance in China is growing continuously, evident by the growth of 5.8x in revenue during 1HFY21 against 1HFY20.
• Fall in Underlying EBITDA: As a result of higher costs in relation to growth investments, underlying EBITDA for the period moved down by 14.3% to US$27.7 million.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The company’s performance could be impacted by the uncertainties arising from the evolvement of the COVID-19 pandemic.
• Strategic Positioning of Global Operations: APX is exposed to risk arising from the ongoing uncertainty in the wider geopolitical environment, particularly in the US and China. Hence, any changes to global economic and political conditions can impact the group.

Outlook:  

• The company expects revenue for 2HFY21 to be in line with historic splits (ex. FY20) and FY21 revenue to witness the growth of mid to high single-digits for Global Services, which is around 25% for New Markets.
• For FY21, the company has reduced its underlying EBITDA guidance to US$81 million - US$88 million from the previous guidance of $83 million - $90 million due to planned investment in Quadrant.
• APX is well-positioned for long-term growth, likely to be backed by the growing investments in New Markets delivering revenue growth, more customers, and higher Annual Contract Value (ACV).

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 company closed 1HFY21 with the strong balance sheet, aided by the increased cash balance of US$66.0 million and nil debt. APX declared an interim dividend of A$4.5 cps, which was franked to 50% and was in line with the 2020 interim dividend. The stock of APX is trading below its 52-week low-high average of $8.360 - $36.840, respectively. The stock has been corrected by ~15.32% and ~29.72% in the past three and six months, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering lower gross margin, low net margin, and COVID-19 related risks. For the purpose of valuation, peers such as Data#3 Ltd (ASX: DTL), rhipe Ltd (ASX: RHP), and Over The Wire Holdings Ltd (ASX: OTW) have been considered. Considering the expected upside in valuation, rising global product revenues, increased cash position, deleveraged balance sheet, synergies from a recent acquisition, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $10.490, as on 21 October 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

APX Daily Technical Chart, Data Source: REFINITIV  

LiveHire Limited

LVH Details

Q1FY22 Financial Highlights: LiveHire Limited (ASX: LVH) is in the provisioning of cloud-based human resources software and platform services. During the Q1FY22, the company recorded a rise of 700% in direct sourcing revenues, which was supported by the addition of 3 new partners (17 in total) and a net gain for the quarter of 4 new clients taking total clients to 18, which is likely to reach 36 by the end of FY22.

• Fall in Quarterly Revenues: As a result of the rolling off of COVID related client hires for Alberta Health, the company witnessed a fall in quarterly revenues of direct sourcing business, which amounted to $578k against $686k in Q4FY21.
• Rise in ARR: With respect to SaaS business, LVH posted a rise of 21% in Annual Recurring Revenue (ARR) to ~$4.4 million on a YoY basis.
• Growth in Cash Receipts: The company added that the financial indicators are tracking to plan and enabling investment into North America. This was evident by the YoY growth of 80% in cash receipts to $1.6 million.

Cash Receipts (Source: Analysis by Kalkine Group)

FY21 Financial Summary:

• Rising Topline: During FY21, the company witnessed a growth of 60% in total customer revenue to $5.533 million against $3.456 million in FY20. This was mainly backed by revenues of $1.4 million from direct sourcing business.
• Improvement in EBITDA Loss: LVH recorded an improvement of 51% in statutory EBITDA loss to $6.451 million as compared to $13.266 million in FY20.

Key Risks:

• Competitive Pressure: The company operates in a highly competitive environment, and the rising market share of peers could impact its operational health.
• Technology Risk: LVH is also exposed to a risk arising from the change in technology, which can change the way of doing business.

Outlook:

• Looking forward, the company seems to be well-positioned to take benefit of the rising market opportunity in North America in Direct Sourcing.
• LVH is optimistic about its success, which is likely to be supported by Full Platform Scalability, Client ROI, War for Talent and Interoperability.
• The company has scheduled to conduct the 2021 Annual General Meeting on 17 November 2021.

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 company closed Q1FY22 with a cash balance of ~$13.15 million as compared to ~$14.41 million as on 30^th June 2020. The stock of LVH is trading near to its 52-week low level of $0.245, offering decent opportunity for accumulation.  The stock has been corrected by ~7.24% and 13.51% in the past one and three months, respectively. 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 a slight premium to its peers’ average EV/Sales multiple, considering the rising cash receipts, growth in ARR, and decent liquidity position. For the purpose of valuation, peers such as Nearmap Ltd (ASX: NEA), TechnologyOne Ltd (ASX: TNE), Integrated Research Ltd (ASX: IRI), and others have been considered. Considering the expected upside in valuation, rising cash receipts, growing topline, decent liquidity position, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.285, as on 21 October 2021, 12:14 PM (GMT+10), Sydney, Eastern Australia.

LVH 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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