LiveTiles Limited

LVT Details

Secured Debt Facility: LiveTiles Limited (ASX: LVT) is engaged in the development and sale of business software in Australia and overseas. Recently, the company has inked an agreement with Sydney-based venture capital firm “OneVentures” for a three-and-a-half-year A$10 million loan facility. The said facility is likely to support the company with funds required for its future investment strategies, to deliver on its new product developments, and working capital and operational requirements.

FY21 Financial Summary:

• Operating Revenue Led by Rising Subscribers: For the year ended 30^th June 2020, LVT witnessed a growth of 19% and 48% in operating revenue and contracted licence base to $45 million and 2.3 million, respectively. The company achieved this growth in spite of the ongoing challenges from the uncertainty with COVID-19 globally. The operating revenue growth was backed by the growing subscribers in all markets.
• Decent Improvement in EBITDA Loss: During FY21, the company recorded an improvement of 91% in underlying EBITDA loss to $1.1 million against $12.55 million loss in FY20, supported by decreased operating expenses
• Increase in ARR: Annualised recurring revenue (ARR) for the year soared by 17% to $62.8 million. In addition, ARR increased by 20% to $64.7 million on a constant currency basis against the June 30, 2020, FX rates

ARR Growth (Source: Analysis by Kalkine Group)

Key Risks:

• Forex Headwinds: Any unfavourable movement in foreign exchange could impact its financial health as it operates in many geographies.
• Regulatory Risk: LVT’s increasing presence globally may increase regulatory requirements and can create regulatory risk for the business.

Outlook:

• LVT is targeting to increase licensed user numbers, with minimum growth of 5 times by 2024. In addition, it is also aiming to make 50% of the world's top 300 employers as its customers.
• Looking forward, the company is continuing to leverage the operating model for efficiencies for maximising commercial opportunities.
• LVT expects strong medium to long-term growth potential, supported by increased remote working as well as the demand for Employee Experience solutions in order to support organisations in a post-pandemic working environment.

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: LVT reported a rise of 26% in cash receipts to $51.8 million in FY21. The company closed FY21 with cash and cash equivalents of $16.8 million, which puts the company in a decent position with an ample amount of capital to manage ongoing operations with growing cash receipts as well as disciplined costs management practices throughout the business. The company is trading on its 52-week low level of $0.115. The stock of LVT has been corrected by ~17.85% and 34.28% in the past one and three months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 disruptions, foreign exchange risk, negative net margin and low current ratio. For the purpose of valuation, peers such as Class Ltd (ASX: CL1), Adacel Technologies Ltd (ASX: ADA), ReadCloud Ltd (ASX: RCL), and others have been considered. Considering the expected upside in valuation, consistent growth in ARR, decent cash position, improvement in EBITDA loss, decent long-term outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.115, down by ~4.167% as on 13^th October 2021.

LVT Daily Technical Chart, Data Source: REFINITIV  

Quantum Health Group Limited 

QTM Details

Ceasing to be a Substantial Holder: Quantum Health Group Limited (ASX: QTM) is involved in the distribution and service of state-of-the-art medical products in the field of radiology, oncology, aesthetics, and environmental health across Asia. On 24^th September 2021, Phillip Sidney has ceased to be a substantial holder in the company.

FY21 Financial Summary:

• Small Decline in Revenue: For the year ended 30th June 2021, the company recorded revenue amounting to ~$55.77 million against ~$59.4 million in FY20, reflecting a fall of 6% as the company is involved actively in realigning its business mix to a reoccurring, higher-margin service model. However, its operating profit increased by 25%.
• Increase in EBITDA and NPAT: QTM recorded a rise of 15% in EBITDA to $10.7 million against $9.33 million in FY20, and NPAT rose by 20% to $7.7 million.
• Rising Service Installation Base: The company’s acquisition of service businesses of Carestream in Australia, New Zealand, and the Philippines in 2020 has resulted in an increase of QTM’s service install base to more than 3,500 systems.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: 

• Competitive Pressure: The company’s operation and financial performance could be impacted by the increasing competition in the industry as well as changing consumer sentiments.
• Forex Headwinds: QTM operates in many geographies, which leads them to risk arising from the fluctuation in foreign currency.

Outlook 

• The company possesses long-standing relationships with leading global suppliers and customers throughout Asia, and it is aiming to increase its installed base by providing long-term recurring service revenues.
• In addition, the company’s stronger financial position has created both organic and accretive growth opportunities for the future.

Stock Recommendation: The company witnessed an increase of 4.7% in receipts from customers to $65.1 million in FY21 against $62.2 million in FY20. QTM closed FY21 with the increased cash balance of ~$11.9 million against ~$8.7 million as on 30 June 2020. The company is trading below its 52-week low-high average of $0.043 - $0.105, respectively. On a TTM basis, QTM has an EV/sales multiple of 1.5x against the industry median (Healthcare Equipment & Supplies) of 9.3x, thus seems undervalued. Considering the valuation on a TTM basis, rising EBITDA and NPAT, increasing cash position, decent long-term outlook, current trading levels, technical levels as mentioned below, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.067, down by ~5.634% as on 13^th October 2021.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks in stringent regulator landscape, stiff competition from peers, and foreign currency risks.

Technical Commentary:

QTM's prices are trading around the resistance turned support level $0.066, indicating the possibility of an upside direction hereon. Prices are also trading around an upward sloping trend line support level, further supporting a positive stance. However, on the daily chart, the momentum indicator RSI (14-period) is trading in negative territory at ~48.55 level. Now a crucial support level for the stock appears at $0.060, while resistance is at $ 0.078 level.

QTM Daily Technical Chart, Data Source: REFINITIV  

Note: The purple color line in the chart depicts RSI (14-period), while the yellow color line represents the trend line.

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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