Bravura Solutions Limited

BVS Details

Appointment of Director & CS: Bravura Solutions Limited (Bravura) (ASX: BVS) is an Australian company that caters wealth management, life insurance and funds administration industries by providing software solutions. On 25^th February 2022, Mr. Brent Henley was appointed as CFO, Director and Joint Company Secretary, effective from the given date.

1HFY22 Results & Other Updates:

• On 25^th February 2022, BVS suspended its Dividend Reinvestment Plan for its Half-year FY22.
• Invesco Australia Limited changed its substantial shareholding from ~9.536% to ~8.532% on 14^th January 2022.
• Total Revenue: The company’s total revenue increased by ~14% on pcp basis, reported as ~$132.3 million in 1HFY22. The increase is owed to ~23% growth in the revenue coming from Funds Administration revenue, and the Delta acquisition gave an additional revenue of ~$4.1 million. The recurring revenue contributed ~80% of total revenue in 1HFY22, while on the other hand non-recurring revenue increased by ~55% driven by project fees and licenses renewal from new clients.
• Profitability/Losses: The company’s EBITDA increased by ~61% Y-o-Y to ~$25.3 million and the margin also increased to ~19% versus ~14% in 1HFY21. The net profits of ~$15.3 million reflected an increase of ~69% from ~$9.0 million in 1HFY21.
• Cash Position: The company closed its accounts with a cash balance of ~$50.6 million at the end of 31^st December 2021 versus ~$73.6 million at the end of 30^th June 2021.

Revenue Bifurcation: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron affecting the employees, operational functions, revenue and thereby profitability.

Outlook: The company expects a growth of ~10% in revenue for FY22 as compared to FY21 by accelerating the growth through operational and strategic investment in its Sonata Alta and Cloud services. BVS is anticipating its operating costs to increase at similar rate as with FY21. Where the EBITDA is expected to be in the range of ~$45-$50 million in FY22, the NPAT is expected to come in between ~$25-$30 million, which is below than the guidance mentioned in November 2021 AGM.

Valuation Methodology: P/E 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 the company has given a negative return of ~45.41% in the past six months. Currently, the stock is trading lower than the average of its 52-week low and high levels of $1.545 and $3.980, respectively. The stock has been valued using the P/E based relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the reduction in ROE in 1HFY22 and lower NPAT expectation for FY22 the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like Hansen Technologies Ltd (ASX: HSN), Pushpay Holdings Ltd (ASX: PPH), Reckon Ltd (ASX: RKN), and others have been considered. Considering the expected cyclical effect of Omicron COVID-19, indicative upside in the valuation, improving performance in 1HFY22, reducing debt-to-equity ratio, current trading levels, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $1.660, 10:50 AM (GMT+10), Sydney, Eastern Australia, as on 28 February 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

BVS Daily Technical Chart, Data Source: REFINITIV

MSL Solutions Limited

MSL Details

MSL Solutions Limited (ASX: MSL) is an Australian company that operates through three segments Asia Pacific, United Kingdom and Denmark. It offers software as a service (SaaS) technology to the sports, leisure, and hospitality sectors.

1HFY22 Results & Other Updates:

• Total Revenue: The company’s total revenue increased by ~45% on pcp basis and reported as ~$16.9 million in 1HFY22, mainly due to UK and Australia markets rebounding. With an increase of ~96% in new organic sales, it reported a ~29% growth in organic revenue. Its new product, Gold Management and Golf Scoring App and its Golf membership’s record growth contributed to the total revenue.
• Profitability/Losses: The company’s EBITDA increased by three times on pcp basis to ~$2.2 million and the margin was up by ~6.7% to ~12.9% in 1HFY22 as compared to pcp.
• Cash Position: On one hand, the company freed itself from interest bearing debt in the first half and closed its accounts with a cash balance of ~$7.8 million at the end of 31^st December 2021 versus ~$2.81 million at the end of 31^st December 2020.

Growth in EBITDA – excluding government subsidies (Source: Analysis by Kalkine Group)

Key Risks: Due to COVID-19 restrictions and lockdowns, the company might face operational risks, and on the other hand it might have to face consequences if technology used is not upgraded timely.

Outlook: The global smart stadium market is expected to grow by ~20.9% CAGR to 2025 and POS (Point of Sale)’s addressable market will increase till ~$21 billion. With already being the Australian market’s leader in POS and Golf, ~8,000 venues are on its list to capture on both POS and Golf. The company also focuses on maximising its payment pathway and increase long term Golf contracts. MSL plans to book its ~£185k (UK) SwiftPOS specific deals wins and ~$1.327 million backlog (APAC) of contracts won in 2HFY22. The company’s digital revenue of ~$0.6 million in 1HFY22 is expected to increase in its second half.  

Stock Recommendation: The stock of MSL has been corrected by ~19.99 % in the past three months. The stock has a 52-week low and high levels of $0.110 and $0.285, respectively. On a TTM basis, the stock of MSL is trading at an EV/Sales multiple of 2.40x, lower than the industry’s median (Software and IT Services) of 4.60x, thus seems to be undervalued. Considering the contracts in line, current trading levels, backlogs shift, valuation on a TTM basis, 1HFY22 results and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.200, down by ~2.440%, as on 28^th February 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MSL 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.

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