Appen Limited

APX Details

Change of Interests: Appen Limited (ASX: APX) has evolved from a language data service provider to be an AI data annotation provider.  It collects and labels image, text, speech, audio, video, and other data. As per a recent update, Mondrian Investment Partners Limited has undergone a change of shareholding in the company and has increased its voting power to 6.18%, from the previous 5.10%.

Changes in Management:

On 28 October 2021, the company has updated that Chris Vonwiller has retired as Chair and director of Appen. Also, the management has confirmed the appointment of Richard Freudenstein as Chair of the Board, effective from the same day itself.

H1FY21 Performance Update:

• The company reported Group revenue at US$196.6 million in H1FY21, impacted by the weightage of project delivery to H2FY21.
• Global Services revenue reported a decline by 9.2% on the pcp due to allocation of resources to new and non-advertising related projects in 1H21. However, revenue from new markets was up by 31.5% to US$47.8 million, driven by product growth and an increase in customer base.
• Underlying EBITDA declined by 14.3% to US$27.7 million in H1FY21.
• However, the company ended the period with a strong balance sheet, reflecting ~US$66 million in cash and no debt as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company predominantly works in a space where there is a huge dependence on talent and skilled personnel for the smooth functioning of the business. Any challenge to retain talent might impact the business flow of the Group.

Outlook: The company has reduced the previous declared guidance of FY21 underlying EBITDA by US$2 million, to be in the range of US$81 million and US$88 million. This is owing to planned investment in n Quadrant. As of August 2021, it had YTD revenue orders of ~US$360 million, reflecting 10% increase on the pcp. The company is anticipating a decent forecast in H2FY21, driven by a strong order book, decent pipeline, and customer deliverables during the period. Further, it expects gross margin to improve in H2FY21, supported by higher revenue, along with favorable customer & project mix.

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 stock of the company has been corrected by ~14.45% in the past one-month. Currently, the stock is trading below the average of its 52-week high and low levels of $32.590 and $8.360, respectively. The stock has been valued using a P/E multiple-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 as compared to its peers, considering the reduction in guidance levels, and muted financial performance, etc. For the purpose of valuation, peers such as Nuix Ltd (ASX: NXL), Data#3 Ltd (ASX: DTL), Link Administration Holdings Ltd (ASX: LNK), and others have been considered. Considering the increase in revenue from new markets, skewed weightage to H2FY21 performance, strong order book & balance sheet, current trading level, indicative upside in valuation, along with key risk associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $9.51 as on 02 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

APX Daily Technical Chart, Data Source: REFINITIV 

Laybuy Group Holdings Limited

LBY Details

H1FY22 Performance Update: Laybuy Group Holdings Limited (ASX: LBY) is a fintech company and engaged in buy now, pay later services in the markets of New Zealand, Australia, and the UK. The company has recently updated about its half-yearly performance where it reported an uptick of 60% in the Annualised GMV to NZ$782 million.

• Rise in income by 60% to NZ$21.2 million in H1FY22 on the back of strong growth in GMV.
• The company reported debt facilities at NZ$88.4 million during the period end.
• There has been an improvement in the statutory loss by 15% to NZ$22.6 million in H1FY22, compared to the pcp.
• Active customers grew by 57% to 889k in H1FY22, from a level of 568k in the pcp.
• There has been an improvement in the cash position to NZ$23 million as of 30 September 2021, compared to NZ$15.5 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to credit risks in scenarios where the customers might default on their payables.

Outlook: The company has witnessed decent performance in the UK business unit with strategic partnerships in new sectors like airline and health. The company expects to achieve annualized GMV of NZ$1 billion for FY22, reflecting a growth of 60-70% on FY21. It is now anticipating a revenue growth of 60-70% in FY22, compared to FY21, depicting a lower revenue target from the outlook given in April 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 stock of the company has been corrected by ~51.61% in the past one-month. Currently, the stock is trading at par to its 52-week low levels of $0.215. The stock has been valued using an EV/Sales multiple-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 as compared to its peers, considering the impact of COVID-19 pandemic, lowered revenue guidance for FY22, mounting losses, etc. For the purpose of valuation, peers such as Openpay Group Ltd (ASX: OPY), EML Payments Ltd (ASX: EML), Bravura Solutions Ltd (ASX: BVS) have been considered. Considering the current trading levels, indicative upside in valuation, technical levels mentioned below, volatile price movement in the past month, impressive growth in GMV, rise in active customers, decent liquidity position, along with key risk associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.215 as on 02 December 2021, 03:50 PM (GMT+10), Sydney, Eastern Australia. 

Technical Insights: 

LBY prices came down significantly and made a new lifetime low on a daily chart. Prices are now trading near to a good support level, which is AUD 0.22 that might give some support to the prices. RSI (14-period) is hovering at extreme oversold region at ~11.45, that give strong probability that the stock might recover from key support levels in the coming trading sessions. Immediate support level is AUD 0.18 while immediate resistance level is AUD 0.27. 

LBY Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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