Bravura Solutions Limited

BVS Details

FY21 Financial and Operational Highlights: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients operating in the wealth management and funds administration industries. During FY21, the company’s key markets in which it operates have witnessed numerous developments, which include vertical integration leading to value chain disruption, reduced interest in large scale implementations, an underserviced middle tier of potential clients, a strengthened desire for lower operational costs, and greater need for improvement in end customers’ digital experiences.

• Decline in Revenue and NPAT: Due to lower revenues in the UK caused by significant COVID-19 uncertainty in the market, the company recorded a fall of 11% in revenue to $243.0 million. Reported NPAT for the year amounted to $34.6 million, reflecting a fall of 14%.
• Fall in EBITDA: BVS recorded an EBITDA of $49.3 million as compared to $57.8 million in FY20, reflecting a fall of 15%.
• Acquisition: In the month of October 2020, the company wrapped up the acquisition of Delta Financial Systems (Delta) for $42 million. The acquisition provided capability in the complex UK pensions – SIPP and SSAS markets.
• Returns to Shareholders: BVS declared an unfranked final dividend of 6.0cps, which brought the full-year dividend payout ratio to 66% of FY21 adjusted NPAT.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Rising Competition: The company operates in a very competitive environment, and the rising market share of peers could impact its financial health.
• Foreign Exchange Risk: BVS operates in multiple geographies, which leaves the business exposed to a risk arising from adverse movement in foreign currency.

Outlook:

• The company is optimistic about its growth, which is likely to be backed by the total addressable market (TAM) in the UK and Australia of ~GBP1.2 billion per annum and ~$1.0 billion per annum of client IT spend, respectively.
• The company holds a single-digit market share in both regions (Australia and UK), and its long-term growth is likely to be generated by clients’ need to address speed to market for new products, the growing importance of a seamless digital experience as well as ongoing changes in financial services regulation and pressure to increase operational efficiency.
• Looking forward, the company would continue to assess numerous acquisitive and organic growth opportunities.
• For the upcoming year, BVS anticipates NPAT growth to be in the mid-teens relative to FY21 adjusted NPAT of $32.3 million.
• The company has scheduled to conduct the 2021 Annual General Meeting on 24 November 2021.

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: BVS believes that the strengthening industry structural demand for SaaS, microservices, cloud and subscription-based services would help the business in attaining growth avenues. At the end of FY21, BVS had a cash balance of $73.6 million against $99.08 million as on 30 June 2020. The stock of BVS is trading below its 52-week low-high average of $2.440 - $3.980, respectively. The stock of BVS has been corrected by ~30.78% and ~17.03% in the past three and six months, respectively. The stock has been valued using P/E 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 premium to its peers’ average P/E multiple, considering the decent addressable market, and focus on acquisitive opportunities. For the purpose of valuation, peers such as Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), and Reckon Ltd (ASX: RKN) have been considered. Considering the expected upside in valuation, development in key markets, synergies from the acquisition, huge addressable market, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $2.600 as on 17 November 2021.

BVS Daily Technical Chart, Data Source: REFINITIV 

Dotz Nano Limited

DTZ Details

Q3FY21 Financial and Operational Highlights: Dotz Nano Limited (ASX: DTZ) is engaged in the development, manufacturing and commericalisation of graphene quantum dots. During the quarter ended 30 September 2021, the company was focused on securing new sales and fulfilling existing orders within the authentication and diagnostics sectors. DTZ secured two purchase orders for its SARS-CoV-2 virus detection technology (the Dotz Test Kits) and inked a distribution agreement covering the UAE, Egypt, Sudan and Paraguay.

• The company started the manufacturing of its virus detection technology and continued the refinement and production of its authentication and active surface sanitisation solutions during the quarter.
• DTZ recorded cash outflow from operating activities of ~US$1.07 million, and receipts from customers stood at US$241k.

Market and Opportunities:

• The company believes that the global counterfeit goods market would reach the toll of $4.2 Trillion by 2022 and global anti-counterfeit packaging market will be of US$200 billion 2025.
• DTZ also find growth path in global rapid medical and Influenza diagnostic market, which are likely to reach $13.8 billion and $2.4 billion, respectively in the future.

1HFY21 Financial Highlights:

• During the half-year, the company recorded revenue amounting to US$258,124 as compared to US$32,940 in 1HFY20.
• DTZ posted a loss after tax of ~US$4.31 million as compared to a loss of ~US$1.25 million in 1HFY20.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Stiff Competition: The company’s operational and financial performance could be impacted by the rising market share of competitors.
• Technology Risk: DTZ is exposed to a risk arising from the shift in new technology in the industry in which it operates.

Outlook:

• For FY22, the company is aiming recurring sales within the anti-counterfeiting, diagnostics, and commercial cleaning sectors.
• The company would also focus on commercializing Dotz Test Kits via seeking additional regulatory approvals, including FDA Emergency Use Authorisation, as well as securing new commercial agreements.

Stock Recommendation: DTZ possesses a growing sales pipeline and the manufacturing flexibility in these domains to rapidly enhance production as required. The company closed Q3FY21 with cash and equivalents of US$4.3 million. The stock of DTZ is trading above its 52-week low-high average of $0.200 - $0.465, respectively. The stock has been corrected by ~11.49% in the past one month. The stock is trading at a P/BV multiple of 5.1x as compared to the industry median (Electronic Equipment & Parts) of 6.1x on a TTM basis. Thus, it can be said that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, decent performance in Q3FY21, new purchase order and distribution agreement, huge addressable markets, decent outlook, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.385 as on 17 November 2021, 11:44 AM (GMT+10), Sydney, Eastern Australia.

DTZ 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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