Aroa Biosurgery Limited

ARX Details

Raise of Capital: Aroa Biosurgery Limited (ASX: ARX) manufactures and commercializes medical devices for wound and tissue repair using extracellular matrix (ECM) technology in the United States and internationally. Following the settlement of A$47 million institutional placement, the company has recently announced the opening of its non-underwritten share purchase plan offer, which aims to raise up to A$5 million. The proceeds of the placement and SPP will be invested in AROA’s US commercial operations and in ARX’s R&D and product pipeline, as well as it will be used for increasing the company’s cash on the balance sheet. Under its existing placement capacity under ASX Listing Rule 7.1, ARX has approximately 40.3 million shares at an issue price of A$1.165 per share.

1QFY22 Financial Performance:

• During the quarter, the company has recorded receipts from customers of NZ$5.26 million.
• Endoform RWD study has been submitted for peer-reviewed publication and expects to announce the outcome in the September quarter.
• AROA reported net cash outflow from operations of NZ$2.7 million in 1QFY21.
• The cash position of the company stood at NZ$31.4 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19- The company has a significant impact on its financials as demand squeezed due COVID-19 pandemic.
• Regulatory Risks: Any delay in the receival of regulatory approval could impact the company’s operations and its timeline of events.

Outlook:

• The company has maintained its sales guidance of NZ$30-33 million, up by 39-53% on FY21. The gross margin in FY22 is expected to be above 70%.
• AROA will launch the New Myriad Morcells product at Society for Advanced Wound Care conference on 10-14 May 2021.
• AROA’s dead space management system has estimated a US$2.5 billion market and further filled three new patents relating to key aspects of this technology.
• To meet the increasing demand, the company is focused on expanding its manufacturing capacity to support NZ$100 million in annual sales by March 2022.

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 ARX is trading below its average 52-weeks' levels of $0.970-$1.550. The stock of ARX gave a negative return of ~10.24% in the past six months and a negative return of ~23.15% in the past one year. On a technical analysis front, the stock of ARX has a support level of ~$1.06 and a resistance level of ~$1.23. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact, negative net margins, and reduced top and bottom line in FY21. For this purpose, we have taken peers such as Next Science Ltd (ASX: NXS), AVITA Medical Inc (ASX: AVH), CSL Ltd (ASX: CSL), to name a few. Considering the expected upside in valuation, current trading levels, increasing market demand, economic recovery, and product launch, we recommend a 'Hold' rating on the stock at the current market price of $1.120, down by ~2.184% as of 4 August 2021.

ARX Daily Technical Chart, Data Source: REFINITIV 

LiveTiles Limited

LVT Details

Q4FY21 Financial Performance: LiveTiles Limited (ASX: LVT) provides a digital workspace, an intranet that delivers solutions to drive digital transformation, productivity, and employee communications in the modern workplace, serves in North America, Europe, Asia, and Australia. 

• The company has recorded an improved ARR by 17% on a pcp basis to $62.8 million in 4QFY21, and ARR improved by 20% to $64.7 million on a constant currency basis.
• LiveTiles has recorded a strong cash receipt of $14.6 million in 4QFY21, up 30% on pcp.
• The US government granted a one-off +$1 million as a COVID-19 relief package during the quarter.
• During the quarter, the net cash operating outflow was ~220k.
• The cash position of the company stood at $16.67 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The COVID-19 pandemic brings a challenging time for the company to manage the operating cash flow cost that impacted the company's financials. Change in technology could impact the company was and the cost of doing business.

Outlook:

• The company aims to launch the Employee Experience academy with Canva and the world's leading experts in September FY21 that could drive strong revenue activity.
• United Health Group (UHG) project, large deal with Singapore based Government department, agreement with Nestle, R&D partners, Australian universities and government could lead to new market opportunity and expand the company’s reach in the global market.
• The company will release its full-year result on 26 August 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: As per a recent announcement, the company has signed a three-year licensing agreement with Nestle to deliver an Employee Experience solution for a minimum worth of $2.1 million. The stock of LVT is trading below its average 52-weeks' levels of $0.142-$0.305. The stock of LVT gave a negative return of ~34.78% in the past one year and a negative return of ~14.28% in the past three months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the strategic expansion in the global market and COVID-19 pandemic relief fund from the US government. For this purpose, we have taken peers such as Class Ltd (ASX: CL1), Skyfii Ltd (ASX: SKF), ReadCloud Ltd (ASX: RCL), to name a few. Considering the healthy balance sheet, agreement with nestle, projects in the pipeline, current trading level, valuation, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.150, as on 4 August 2021, 11:03 AM (GMT+10), Sydney, Eastern Australia.

LVT Daily Technical Chart, Data Source: REFINITIV

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