Netlinkz Limited   

NET Details 

Simplified Capital Structure: Netlinkz Limited (ASX: NET) offers NetLinkz, a technology that provides a Software-Defined Wide Area Network (SD-WAN) solution connecting any sites to any device, anywhere, on any network. The company is operating in Australia, the USA, and Europe. NET able to grow 3x of revenues with over 60 clients and resellers in about six regions. It had delivered 18% ARR. The company has simplified its capital structure by cancelling many outstanding options. It had repaid all the convertible notes and brought down debt levels considerably from $14.1 million as of June 2020 to $1.3 million as of June 2021. Through capital raise in May 2021, NET strengthened its investor base with institutional investors. Regal Funds Management Pty Ltd. acquired 8.75% voting rights recently. It had forged partnerships to foray into ASEAN, Indian, Japan, Europe, and MENA regions in the next 12 months. 

3QFY21 Financial Update: NET posted 85% revenue growth in the quarter ending March 2021 (on a QoQ basis). It had signed a distribution agreement with Frame Communications operating in the UK market. Increased contribution from recurring revenues and from Asian countries contributed to the growth. However, NET posted a loss of $3.7mn in 3QFY21 due to one-off charges. It had closed the period with a cash balance of $3.1mn as of 31 March 2021. 

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: Increasing competition may affect customer churn rates and price gains. Due to international operations, the company is exposed to foreign currency-related risks. Therefore, any adverse movement in foreign currency rates may affect profitability. 

Outlook: NET expects revenues in a range of $15-$16mn for FY21, nearly three times of revenues in FY20. Similarly, the company expects ~$16mn of receipts from customers in FY21, representing three times of FY20 receipts. The company expects a nearly three times higher number of enterprise clients from FY20 to more than 60 enterprise clients in FY21. The company expect to lower its debt-to-equity ratio to less than 1x in FY21 from ~28x in FY20. 

Stock Recommendation: The stock of NET gave a return of ~+20.83% in the last one week and a return of +7.41% in the last one month. The current market capitalization of NET stands at ~$79.79mn as of 2^nd July 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.020-~$0.095. Considering the historical losses, intensively competitive business and low scale of operations, the current trading levels, and technical levels, we recommend a “Sell” rating on the stock at price of $0.033 as on July 02, 2021, 02.04 PM (GMT+10), Sydney, Eastern Australia.

Technical Overview:

NET stock prices witnessed a significant decline in the past couple of months. After the prices hit low levels of $0.020, NET Stock price recovered recently from lower levels and today made a high of $0.033 level. Prices are now facing the resistance of the horizontal trend line as well as from 21-period SMA on the weekly chart. RSI (14-Period) have also recovered from the oversold zone to ~43.72, indicating moderate bullish momentum for the stock prices. Immediate support levels are $0.024 and $0.020, while immediate resistance appears to be at $0.040 and $0.051. 

NET Weekly Technical Chart, Data Source: REFINITIV

Note: Note: The yellow color line in the chart shows the resistance line while the purple color line represents RSI (14-period). 

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.

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