Altium Limited

Stocks’ Details

Record EBITDA Margin of 36.5%:Altium Limited (ASX: ALU) is engaged in the development and sales of computer software for the design of electronic products. As on December 10, 2019, the market capitalisation of the company stood at $4.66 billion. In the recently held Annual General Meeting of the company, the top management addressed its shareholders and stated that the ALU has delivered industry-leading results, both in technology and engineering as well as in financial returns for shareholders. During the year, Worldwide revenue went up by 23% to US$171.8 million. This resulted the company to deliver record EBITDA margin of 36.5% and NPAT (Net Profit After Tax) of US$52.9 million, up by 41% as compared to US$37.5 million in FY18. 


Financial Performance (Source: Company Reports)

What to Expect: The company expects to exceed the set long-term strategic revenue targets of US$200 million for the FY20 and also anticipates it to be in the range of US$205 million to US$215 million. The company expects EBITDA margin to be between 37% to 38%. Altium Limited is anticipating reaching its halfway mark of 50,000 subscribers as early as 2020.

The company is focusing on becoming the dominant provider of PCB design software by scaling up the transactional sales capacity and expanding the market reach in all geographies and by driving adoption of its new cloud platform Altium 365. Altium Limited has also committed to achieve revenue of $500 million by 2025 with 100,000 subscribers.
 
 
Valuation Methodology: Price/ Cash Flow Multiple Approach

Price/ Cash Flow Multiple (Source: Thomson Reuters) *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: As per ASX, the stock of ALU gave a return of 70.87% in the last one year and a return of 10.42% in the past 6 months. The stock is inclined towards its 52-week high of $38.490. During the year, net margin of the company stood at 30.6%, higher than the industry median of 15.1%. Return on Equity stood at 31.4% as compared to the industry median of 12.6%. We valued the stock using one relative valuation method, i.e., Price/Cash Flow multiple, suggesting that the stock price might witness a fall of lower double-digit growth (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $35.580, down by 0.084% on 10 December 2019.

Appen Limited

Substantial Rise in EBITDA: 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. As on 10^th December 2019, the market capitalisation of the company stood at $2.78 billion. During the first half of 2019, revenue of the company went up by 60% to $245.1 million from $152.8 million in 1H18. This was mainly due to growth in high speech and image revenue from expansion of existing projects and new work as well as relevant data from its major customers. Leapforce integration, efficiencies and economies of scale resulted in the increase in Underlying EBITDA by 81% to $46.3 million in 1H19.


Financial Performance (Source: Company Reports)

What to Expect: Appen Limited is improving its position in a high growth market through investments in technology, sales & marketing, government markets and China. The company guided for the full year underlying EBITDA and expects it to be between $96 millionto $99 million. It also gave the ARR (Annual Recurring Revenue) guidance of $30 million to $35 million (at A$1=US$0.74) which was set in August 2019.

Valuation Methodology: EV/EBITDA Multiple Approach

EV/EBITDA multiple (Source: Thomson Reuters) *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.

Stock Recommendation: As per ASX, the stock of APX gave a return of 79.22% on YTD basis and a return of 5.52% in the last one month. During the year, gross margin of the company showed an improvement over the past year and stood at 40.8% in 1HFY19, up from 36.2% in 1H FY 2018. The company also reported a stable financial position with Debt/Equity ratio of 0.07x, lower than the industry median of 0.53x. Thus, considering the improvement in margins, decent outlook and valuation, we valued the stock using a relative valuation method, i.e., EV/EBITDA multiple, and arrived at a target price that is providing a return of lower double-digit growth (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $22.630, down by 1.351% on December 10, 2019.

NEXTDC Limited

Record Revenue and EBITDA: NEXTDC Limited (ASX: NXT) is engaged in establishment, development and operation of data centre facilities. As on December 10, 2019, the market capitalisation of the company stood at $2.27 billion. The top management in its recent AGM stated that the company witnessed a substantial rise in revenue of 15% to $179.3 million in FY19 from $161.5 million in FY18 and recorded a growth of 36% in Underlying EBITDA. The company also witnessed a rise of 22% in customers, which stood at 1,184 in FY19 on YoY basis with a CAGR of 31% in the span of 5 years from FY14 to FY19.


Growth in customers (Source: Company Reports)

What to Expect: The company experienced a strong start to FY20 and provided guidance and remain on track for solid revenue growth of between 12% and 15% over FY19 results. It further expects the to deliver growth in underlying EBITDA of approximately 17% to 23%, driven by the performance of its second-generation facilities. The company anticipates to invest between $280 and $300 million in new infrastructure to bring on additional capacity to support customers’ growth requirements. NXT has set an operational benchmark for the data centre industry in Asia Pacific.

Valuation Methodology: EV/EBITDA Multiple Approach

EV/EBITDA multiple (Source: Thomson Reuters) *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.

Stock Recommendation: As per ASX, the stock gave a return of 8.06% on YTD basis and a return of 4.62% in the last 3 months. In the time span of 4 years from FY15 to FY19, the company witnessed a CAGR of 30.99% in revenue and a CAGR of 39.09% in gross profit. During the year, EBITDA margin of the company stood at 52.4%, higher than the industry median of 28.4%, indicating the stability in the business. Current ratio of the company was 7.04x as compared to the industry median of 2.81x. This indicates that the company is sufficiently liquid and is capable of paying its current liabilities using its current assets. Considering the decent returns, CAGR in gross profit and high EBITDA margin, we have valued the stock using one relative valuation method, i.e., EV/EBITDA multiple and arrived at the target price that is offering an upside of lower double-digit growth (in percentage terms). On the backdrop of above factors, we recommend a “Buy” rating on the stock at the current market price of $6.670, up by 1.522% on December 10, 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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