COSOL Limited

COS Details

FY21 Performance Update: COSOL Limited (ASX: COS) is a leading Ellipse ABB enterprise software managed service provider in the regions of Asia Pacific and North America. It has its client base operating in asset-intensive industries. COS has delivered robust performance during the FY21 period.

• The company reported revenues of $33.58 million during the year, reflecting an increase of 51% on the previous year. The growth was driven by the decent underlying performance of operating business units in Australia and North America.
• The company’s EBIT grew by ~41% to $5.52 million in FY21, with an EBIT margin of 16.45%. NPAT grew by ~39% to $3.99 million in FY21.
• It ended the period with a strong balance sheet, having a cash position of $4.18 million and net debt of $2.3 million.
• The company declared a fully franked final dividend of 1 cent per share, with a pay-out date of 29 October 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks: The company is dependent on its acquisitions for business growth and any challenges in achieving business synergy, might pose a threat to the profitability of the Group.

Outlook: The company’s major clients include some of the prominent blue-chip organisations, which provides a strong base for referability for the attraction of new clients. It is optimistic in its prospects in FY22 and plans to expand and grow its presence in North America. Moreover, its acquisition strategy will expand its digital solutions and services. COS will hold its AGM on 18 November 2021.

Stock Recommendation: As per a recent update, Mr Bradley Ronald Skeggs has undergone a change of shareholding in the company and has decreased his voting power to 5.83%, compared to previously held 7.04%. The stock of COS is trading below its average 52-weeks' levels of $0.530-$0.840. The stock of COS gave a negative return of ~17.29% in the past one year and a negative return of ~11.29% in the past one month. On a TTM basis, the stock of COS is trading at an EV/Sales multiple of 2.3x, lower than the industry median (Professional & Commercial Services) of 2.8x, and thus seems undervalued. Considering the current trading levels, valuation on TTM basis, robust financial performance, decent balance sheet position, strong client-tele of blue-chip customers, and the other key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.550, as on October 27, 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and considering associated risks of funding adequate capital, loss of key customers, and integration benefits of the newly acquired business.

COS 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.