Cogstate Limited

CGS Details

Grant of Approval for ADUHELM^TM: Cogstate Limited (ASX: CGS) is a provider of computerised cognitive tests for clinical trials, academic research, healthcare, and brain injury applications, mainly in the US, Australia, and Europe. As of 8 June 2021, the market capitalisation of CGS stood at ~$158.16 million. On 8 June 2021, Eisai Co., Limited (Eisai Japan) and Biogen Inc. declared the grant of approval for aducanumab (marketing name ADUHELM^TM) by the US Food and Drug Administration (FDA) for the treatment of Alzheimer. Eisai has already signed a ten-year agreement with CGS for the exclusive development and distribution of its technologies globally. CGS expects that its technologies will play a pivotal role in supporting the wide-scale cognitive assessment required in the launch of ADUHELM.

Issue of Options Under ESOP: On 14 May 2021, CGS announced the issue of options to Mr Rohan Prentice as per the employment terms upon his appointment as the Financial Controller. It has issued these options under three tranches following the Employee Share Option Plan (ESOP).

Q3FY21 Takeaways: The company reported a Group revenue of US$8.83 million in Q3FY21, up by 39.6% YoY. With Q3FY21 quarter’s revenue addition, YTDFY21 revenue stood at US$22.7 million, up by 51% YoY. Besides, the total contracted future revenue stood at US$79.7 million in Q3FY21, up by 89.3% YoY. CGS held a cash balance of US$17.6 million as of 31 March 2021.

Net Income from FY2016-FY2020; (Analysis by Kalkine Group)

Key Risks: The company is exposed to stiff competition and an uncertain macro environment due to COVID-19 virus outbreak. It bears the risk of weak economic sentiment, lesser spending by the customers and exposure of financial instruments to foreign exchange and interest rate changes.

Outlook: CGS has registered a profit before tax (PBT) in the March quarter and expects to report a profit before tax for FY21. Given the approval grant for ADUHELM, CGS believes that Eisai will not be able to exercise the right option to terminate the contract after the fifth year. It estimates that Eisai will be contractually stipulated to pay the minimum royalty, an aggregate sum of US$20 million to CGS from year six to ten. CGS has a robust sales pipeline of clinical trials in Q4FY21. In 2H21, CGS expects to witness a six-month contribution of royalties (US$2.1 million, with $1.1 million in 4QFY21) from Eisai Global (ex-Japan).

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 CGS gave a positive return of 38.30% in the past three months and a positive return of 29.90% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level band of $0.310-$1.605. The stock of CGS has a support level of ~$1.328 and a resistance level of ~$1.605. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of a single high-digit downside (in % terms). We believe that the company can trade at a slight premium than its peer average, considering its increase in Group revenue in 1HFY21, expected PBT outlook for FY21, and increased contracted future revenue for Q3FY21. For this purpose, we have taken peers like Volpara Health Technologies Limited (ASX: VHT), Mayne Pharma Group Limited (ASX: MYX), and Probiotec Limited (ASX: PBP). Considering the high trading levels, negative ROE, and net loss from FY2017-FY20, and valuation, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of AUD 1.53 (as on June 08, 2021, 03.02 PM (GMT+10), Sydney, Eastern Australia).

CGS Daily Technical Chart, Data Source: REFINITIV 

Slater & Gordon Limited

SGH Details

Key Takeaways from 1HFY21 Results: Slater & Gordon Limited (ASX: SGH) is a legal services provider in Australia. As of 8 June 2021, the market capitalisation of SGH stood at ~$96.67 million. On 12 April 2021, SGH announced the issue of 620,000 performance rights under an employee incentive scheme, which is currently not listed on ASX. The company reported a revenue of $98.29 million in 1HFY21, up by 10.7% YoY due to increased enquiries and active files. It posted a rise in profit in 1HFY21 to $3.09 million, up from a loss of $561,000 in 1HFY20. SGH generated net cash flows of $6.41 million from operating activities in 1HFY21. SGH repaid $5 million to SSF (Super Senior Facility) lenders during the reporting period.

The results demonstrate the transformation gains resulting in growth in the personal injury business and an increase in the class actions portfolio. SGH held a cash and cash equivalents balance of $19.73 million as of 31 December 2020.

Revenue & Net Loss after Tax from FY2016-FY2020; (Analysis by Kalkine Group)

Key Risks: The company faces the impact of COVID-19 lockdowns on its team in Victoria. It bears the risk of lower activity in some legal processes and settlement volumes, owing to the COVID-19 restrictions.

Outlook: SGH intends to reduce its gearing, going forward. It plans to grow through service differentiation by training lawyers and brand campaigns, delivering social justice (seeking compensation for over 1,300 asylum seekers) and implementing Digital Management Solution. The company has increased the number of roles in its Civil practice and Class Actions and expanded the partner & referral program with Australian Family Law. It aids the company to foresee a growing market for both the Public Interest Litigation (PIL) and Class Actions segments.

Stock Recommendation: The stock of SGH gave a negative return of 17.57% in the past three months and a negative return of 23.59% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.620-$1.485. On an TTM basis, the stock of SGH is trading at an EV/Sales value multiple of 1x, lower than the industry median of 2.9x, thus seems undervalued. Considering the current trading levels, increase in revenue, earnings, NPAT, repayment of $5 million debt, valuation on TTM basis and related risks of pandemic restrictions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.680, down by ~2.159% on 8 June 2021.

SGH Daily Technical Chart, Data Source: REFINITIV 

QuickFee Limited

QFE Details

Growth in Payments Platform in the US: QuickFee Limited (ASX: QFE) provides the QuickFee technology platform and fee funding lending solution. As of 8 June 2021, the market capitalisation of QFE stood at ~$51.66 million. On 7 May 2021, QFE announced the highest increase in lending in April to A$3.5 million, up by 30% QoQ, indicating a local business recovery in Australia. It processed US$76.4 million of US PayNow volume in April 2021, up by 13% on QoQ with a TTV annualised run rate of more than US$900 million. QFE Instalments product registered processing value of US$180,000 in April 2021, up by 600% QoQ, due to an increase in new merchants and product demand.

Key Takeaways from Q3FY21: In the March quarter, QFE reported an increase in the number of active merchants using its US platform to 496 from 307 on a pcp basis. Its US PayNow transaction volume increased to US$152.2 million in Q3FY21, up by 128% YoY. QFE Instalments product is gaining traction in the US and Australia, with a total of 531 merchants signed up to the product as of 31 March 2021.

Revenue & Net Income from FY2018-FY2020; (Analysis by Kalkine Group)

Key Risks: The company faces technological advancements, software updates and technical glitches on its payment platform. It bears the risk of higher provisions due to credit default by borrowers and interest rate changes. 

Outlook: The QFE Instalments product is still in the nascent stages in terms of lending volumes. The company will execute its go-to-market strategies focusing on its current expertise in accounting & law and other services verticals. QFE is progressing well to introduce the ConnectAR integration tool by the close of Q4FY21.

Stock Recommendation: The stock of QFE gave a negative return of 15.51% in the past month and a negative return of 24.61% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.220-$0.975. On a TTM basis, the stock of QFE is trading at a price to book value multiple of 1.6x, lower than the industry median of 3x. Considering the current trading levels, the increase in lending activity in March & April (the highest) in Australia, increase in the US PayNow volume in April 2021, the launch of QFE Instalments product, valuation on a TTM basis and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.245, up by 5.376% on 8 June 2021.

QFE Daily Technical Chart, Data Source: REFINITIV 

Spacetalk Limited

SPA Details

Registered with NDIS: Spacetalk Limited (ASX: SPA) is a developer and seller of wearables. It markets GPS devices, smartwatch, and kids’ phone. As of 8 June 2021, the market capitalisation of SPA stood at ~$25.63 million. On 7 June 2021, SPA announced that it had become a registered provider by the National Disability Insurance Agency (NDIS). It implies that the participants in the NDIS scheme will be able to access SPA smartphone watches. As an authorised provider, SPA is more directly capable of supporting the scheme participants, in which more than 50% of participants are children.

Update on SPA Devices with Telstra: On 27 May 2021, SPA announced that Telstra contributed 34% to its Adventurer kids’ device sales spanning its Mobile Network Operator (MNO) partner network since the device launch on 13 April 2021. Telstra is currently SPA’s largest MNO channel to sell Adventurer devices. Currently, Telstra is working on a SIM service plan for SPA devices.

Key Takeaways for Q3FY21 (March quarter): The company posted a record Group revenue of $3.9 million in Q3FY21, up by 110% YoY. It registered significant App ARR (Annualised Recurring Revenue) growth of $2.7 million, up by 72% YoY. Its customer acquisition costs (CAC) came down to $19 million in Q3FY21, down by 88% YoY. It held a cash balance of $4.9 million as of 31 March 2021.   

Revenue & NPAT from FY2018-FY2020; (Analysis by Kalkine Group)

Key Risks: The company faces changes in the spending pattern, income, and preferences of consumers. It also bears the risk of a subdued retail environment due to the COVID-19 scenario and restrictions. 

Outlook: For 2HFY21, SPA plans to expand its product portfolio (Kids, Adventurer, and Life) and sales channels (stores, MNOs, and new markets) to boost revenue growth. SPA is planning for a retail store launch and MNOs onboard with the new country head in the UK. In addition, it has scheduled the go-to-market for CY21 in the USA. 

Stock Recommendation: The stock of SPA gave a positive return of 50% in the past three months and a positive return of 43.47% in the past six months. The stock is currently trading at its 52-weeks’ average price level band of $0.105-$0.225. The stock of SPA has a support level of ~$0.145 and a resistance level of ~$0.185. Considering the high trading levels, negative ROE, and negative net margins in 1HFY21, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of AUD 0.170 (as on June 08, 2021, 01.42 PM (GMT+10), Sydney, Eastern Australia).

SPA 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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