Spirit Technology Solutions Ltd

ST1 Details

Appointment of Director: Spirit Technology Solutions Ltd (ASX: ST1) is involved in the provisioning of IT&T services, which include the provisioning of telecommunication services, cloud services, managed IT services and cyber security services. As announced on 15 March 2022, the company has been appointed Michelle Bendschneider as a Non-Executive Director, which will be effective from 1 April 2022. As per the recent quarterly rebalance of S&P/ASX indices, ST1 will be removed from All Ordinaries, effective from 21 March 2022.

Insights of 1HFY22: During the half-year, the company experienced decent financial performance. In the past year, ST1 successfully executed its strategic plan to shift its focus from fixed wireless assets towards digital solutions with sustainable recurring revenue streams at attractive margins.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: The business could be impacted by the risk arising from the failure in maintaining cybersecurity. ST1 continue to witness ongoing cost pressures, supply-side delays and business disruptions due to COVID-19 uncertainties.

Outlook: The company expects 2HFY22 revenue to be on a growth trajectory to $75 million, which may lead the full-year revenue to be around $140 million.

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 ST1 is currently trading at par to its 52-week low level of 0.140, offering a decent opportunity for accumulation. The stock has been corrected by ~26.31% in the past one month. 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 can trade at a slight premium to its peers’ average P/E multiple, considering the growing earnings and optimistic growth for the future. For the purpose of valuation, peers such as Uniti Group Ltd (ASX: UWL), TPG Telecom Ltd (ASX: TPG), Telstra Corporation Ltd (ASX: TLS), and others have been considered. Considering the expected upside in valuation, growing revenue and earnings, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.140, down by ~1.755% as on 17 March 2022.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

ST1 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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