Codan Limited

CDA Details

Acquisition of Broadcast Wireless Systems Limited (BWS): Codan Limited (ASX: CDA) is a developer and provider of communications and metal detection equipment to mining firms, security and military groups, and governments. On 1 December 2021, CDA announced the acquisition of the UK-based firm, BWS, by its subsidiary Domo Tactical Communications Limited (DTC) from the founders of BWS.

Transaction Highlights:

• CDA used its existing debt facility to fund the transaction including ~$3.7 million upfront payment. It will possibly make another payment up to ~$4.8 million upon the fulfilment of earn-out targets over next three (3) years.
• DTC will now own a high-quality tech portfolio of wireless video camera links, video broadcast products, and expand its reach to the growing remote broadcast industry.
• The acquisition of BWS is reported to be EPS accretive from the start due to the delivery of ~$0.6 million EBIT in FY21.
• The company also updated on the ongoing integration with the recently acquired DTC and Zetron businesses and is on track to deliver EBITDA targets of FY22.

Chairman’s Address:

• Record Results: CDA reported the highest statutory NPAT of ~$90 million (up by 41% YoY) for FY21. It achieved growth in EBITDA, sales, profit, and cash flows results. The shareholders received a fully franked dividend of 27 cents per share for FY21.
• Acquisitions: CDA acquired DTC and Zetron businesses for ~$174 million in FY21. Minelab, a business acquired in 2009, registered ~38% increase in sales to over ~$327 million in FY21.

NPAT Growth Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of realisation of synergies from acquisitions, technological changes, and cyber security risk. CDA faces the disruptions in supply chain and increased freight costs.

Outlook:

• The leadership is committed to progress on its detailed three-year plan to reshape, diversify business mix, and grow the newly acquired businesses of DTC and Zetron to contribute significantly to future.
• CDA is reviewing acquisition avenues in adjacent markets across its businesses to accelerate entry in new markets and products.
• In FY22, CDA will prioritise the business integration of the two new businesses (DTC & Zetron) and investment in new product development in 
• CDA expects uncertainty around tactical communications business and supply chain due to COVID-19 impacts. The demand for the metal detection products is expected to remain strong.
  

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 CDA gave a negative return of ~34.62% in the past three months and a negative return of ~46.66% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $9.200 - $19.430. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering an uptick in the debt-to-equity ratio, ongoing impact of COVID-19 on supply chain and shipping networks, expected uncertainty around tactical communications business, etc. For this purpose of valuation, few peers like Ava Risk Group Limited (ASX: AVA), Elsight Limited (ASX: ELS), Nanoveu Limited (ASX: NVU), and others have been considered. Considering the current trading levels, record levels of sales, profitability, and cash flows in FY21, new contract win in the US by DTC, expanded base with new acquisitions, and upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $9.530, as of 1 December 2021, 11:05 AM (GMT+10), Sydney, Eastern Australia.

CDA Daily Technical Chart, Data Source: REFINITIV  

Bigtincan Holdings Limited

BTH Details

Issue of Shares: Bigtincan Holdings Limited (ASX: BTH) provides artificial intelligence (AI) based sales enablement software and learning management solutions. On 29 November 2021, BTH issued 67,671 ordinary shares at $0.540 for cashless consideration due to conversion/ exercise of options under an employee incentive scheme.

Presentation Highlights from the AGM:

• BTH expanded the addressable market for its products in FY21. The company reports that the sales intelligence market is expected to grow to ~$3.4 billion by 2024.
• For the Bigtincan Platform, BTH adopts a multi-hub product strategy driving new logo wins and opportunities to upsell and cross-sell.
• In FY21, BTH grew by a mix of strategic acquisitions of Vidinoti, ClearSlide, VoiceVibes, Agnitio, and collaboration with AWS.
• The company will make investments in building system components (Bigtincan Identity and Universal Content System), customer care experiences, and expand new infrastructure support such as in Hong Kong for regional expansion in Asia.

Q1FY22 (ending 30 September 2021):

• The total cash receipts excluding Brainshark amounted to ~$12.4 million in Q1FY22, up ~174% YoY.
• BTH expanded the product suite with upgraded versions of existing products and new capabilities. BTH released Content Hub v5. and Learning Hub v5.20 and launched Bigtincan Studio v2 (the next-generation content creation tool).
• BTH established the Data Products Group in Q1FY22 spearheaded by Debra Cancro and started investing in the group to scale up infrastructure and recruit staff to support the group.

Quarterly Cash Receipts Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological upgrades/ failure and peer competition in sales engagement, and the mobile content industry. It risks new customer wins and depends on third-party IT suppliers.

Outlook:

• BTH remains on track to deliver or exceed annualised recurring revenue (ARR) guidance of ~$119 million and revenue of ~$109 million in FY22.
• The company expects more opportunities for cross-sell and upsell during FY22.
  

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 BTH gave a negative return of ~25.44% in the past three months and a positive return of ~5.53% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.761 - $1.530. The stock has been valued using the Enterprise Value to Sales 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 than its peers’ mean EV/Sales multiple, considering its negative cash flows, increase in costs due to integration and system infrastructure, and continuing negative margins, etc. For this purpose of valuation, a few peers like Readytech Holdings Limited (ASX: RDY), Class Limited (ASX: CL1), Praemium Limited (ASX: PPS) have been considered. Considering the current trading levels, growth in cash receipts, customer wins, partnerships, investment in tech upgrades, the decent outlook for FY22, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.040, as of 1 December 2021, 11:02 AM (GMT+10), Sydney, Eastern Australia.

BTH Daily Technical Chart, Data Source: REFINITIV  

Tesserent Limited

TNT Details

AGM Presentation Highlights: Tesserent Limited (ASX: TNT) offers cloud, managed services, and cyber security consulting to education providers, companies, and government customers in Australia and overseas. On 23 November 2021, Julian Challingsworth, ceased to be a director in the firm.

In the recently held AGM on 19 November 2021, the management provided a business update on a YTD2021 basis:

• The YTD2021 financial results are reported to be in sync with the budget for the four months that ended on 30 October 2021. It registered ~67% YoY growth in turnover and ~150% YoY increase in the Divisional EBITDAC.
• The company has been cash-flow positive since the start of FY21.
• The company held ~$19.8 million cash and had ~$15.2 million net debt as of 15 November 2021.
• TNT has 43 companies as its key customers within the ASX100.

Acquisitions Update: The company raised ~$25 million as of 30 September 2021 to fund multiple targeted acquisitions. TNT recently acquired Loop Secure on 1 October 2021 and advancing discussions on two pending acquisitions. These acquisitions are undertaken considering fitment with TNT’s Cyber360 Model, deepen offerings, enhance the EBITDA to Turnover margin, and annuity income.

Key Financial Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of cyber security, government regulations, peer competition, and realisation of synergies from various acquisitions.

Outlook:

• The company targets ~$200 million in turnover, ~15% as the operating EBITDA margin, and ~50% Annual Recurring Revenue (ARR) as the near-term goals.
• TNT is advancing in talks on targeted acquisitions and holds the cash on hand to complete the pending acquisitions. TNT aims to progress on its short-term goals, after completing the acquisitions.
  

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 TNT gave a negative return of ~29.78% in the past three months and a negative return of ~21.42% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.150 - $0.440. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ mean EV/Sales multiple, considering its continuing trend of negative net margins and negative ROE, risk of integration from multiple acquisitions, and forex rate changes, etc. For this purpose of valuation, few peers like Rightcrowd Limited (ASX: RCW), Integrated Research Limited (ASX: IRI), Adacel Technologies Limited (ASX: ADA), and others have been considered. Considering the current trading levels, decent growth in turnover and divisional EBITDAC, positive cash flows, expanded base via acquisitions & opportunities to cross sell, indicative upside in the valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.165, down by ~2.942%, as of 1 December 2021.

TNT 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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