Appen Limited

APX Details

Director’s Shareholding: Appen Limited (ASX: APX) develops high-grade human automated datasets for Machine Learning (ML) and Artificial Intelligence (AI). APX caters to financial services, technology, automotive, government, healthcare, and retail industries. On 6 October 2021, Director, Ms Vanessa Liu, held 4,000 ordinary shares in APX via an on-market purchase of 1,643 shares for a consideration of $8.94 per share.

Acquisition Completed: On 14 September 2021, APX completed the acquisition of Singapore-based Quadrant Global Pte Limited. The acquisition is expected to expand APX’s data capabilities and product offerings for present customers and unfolds new growth avenues in the location intelligence market.

1HFY21 Highlights:

• Revenue Decline: APX reported a decline in total revenue by 2% YoY to US$196.56 million in 1HFY21. The Global Services’ division generated lower revenue; however, the New Markets division’s revenue was up by 31.5% YoY in 1HFY21.
• ACV Increase: The Annual Contract Value (ACV) increased to US$119.6 million in 1HFY21, up by 16% YoY, driven by the expansion of a company-wide platform agreement with a key customer.
• New Project Wins: In 1HFY21, APX started work on 100 new projects with its Global customers and out of which 97 were not ad related.
• Increase in Cash Balance: The company exited the period with cash balance of US$65.96 million, up from US$60.49 million as of 31 December 2020.
  

Global Product Revenue Trend from 1HFY19-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces the impact of COVID-19, causing a shift towards new and non-ad related projects. The change in Global customers’ strategy towards advertising, new machine learning techniques, and new training data requirement poses challenges to the company.

Outlook:

• The company has narrowed down the Underlying EBITDA guidance to US$81- $88 million from the previously stated US$83 - US$90 million for FY21, owing to the impact on ad-related projects and increased investment planned for Quadrant for FY21.
• APX has ~US$360 million YTD21 revenue and orders for delivery for FY21 as of August 2021 versus US$328 million as of August 2020.
• APX expects revenue skewed towards 2HFY21, given the customers’ delivery schedule. The company estimates the Global Services revenue growth between mid-to-high single-digit and New Markets' division to grow at ~25% in FY21.

Valuation Methodology: Price to Earnings 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 APX gave a negative return of ~27.92% in the past three months and a negative return of ~45.51% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $8.360. The stock has been valued using the Price to Earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average Price/Earnings multiple, considering its lower NPAT & declining revenues, COVID-19 impact, lower ad-related project revenue, and skewed project delivery schedule. For this purpose of valuation, few peers like EML Payments Limited (ASX: EML), Link Administration Holdings Limited (ASX: LNK), Over the Wire Holdings Limited (ASX: OTW) have been considered. Considering the current trading levels, healthy balance sheet, growth in ACV and New Markets division, new non-ad related projects in 1HFY21, order pipeline for FY22, valuation, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $8.850, as on 8 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

APX Daily Technical Chart, Data Source: REFINITIV  

Spirit Technology Solutions Limited

ST1 Details

Director’s Notification: Spirit Technology Solutions Limited (ASX: ST1) is an information technology and telecommunication (IT&T) provider of cloud-based services, telecom services, managed IT services, and cyber security services. On 30 September 2021, Ms Inese Kingsmill ceased to be a Director in ST1 in line with the company’s recent announcement on 24 September 2021.

FY21 Highlights:

• Increase in Underlying EBITDA: The Underlying EBITDA rose to $11.5 million, up by 209% YoY in FY21.
• Integration Completion: ST1 completed business integrations of 10 companies acquired recently and progressing with the remaining three. ST1 expanded the portfolio further with the acquisition of Nexgen Group in April 2021.
• Capital Raise: ST1 raised $23.8 million via institutional placement and issued 72.12 million shares at $0.33 (33 cents) per share in April 2021.
• Rise in NPAT: The company registered an NPAT of $1.15 million in FY21 versus a net loss after tax of $1.51 million in FY20.

Total Revenue & Net Income Highlights from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces financial risks, COVID-19 impact, forex headwinds, and stiff competition.

Outlook:

• For the next two years, ST1 plans to actively get involved in the industry consolidation events occurring in IT & Telco markets based on the customers’ demand.
• ST1 expects the current environment to remain challenging for the SMB (Small and Medium Businesses) market and limited avenues in the short term.
• The company is well on track regarding the consumer asset divestment process and has received several bids. The company is engaging with the interested purchasers of the consumer assets and considering divesting non-core infrastructure assets. The Board has appointed an advisor to evaluate the options. ST1 will provide an update once the due diligence process completes.
• ST1 is witnessing positive demand for its products- Cyber, Data, Voice, Managed Services, especially for its packaged offering. The company is experiencing increasing momentum in larger agreements in the mid and corporate markets.

Valuation Methodology: EV/EBITDA 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 ST1 gave a negative return of ~18.96% in the past three months and a negative return of ~33.80% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.210 - $0.450. The stock has been valued using the Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/EBITDA multiple, considering its low current ratio, increased borrowings, ongoing COVID-19 & integration risk, challenging market forecast for SMB, etc. For this purpose of valuation, few peers like 5G Networks Limited (ASX: 5GN), Chorus Limited (ASX: CNU), Spark New Zealand Limited (ASX: SPK), and others have been considered. Considering the current trading levels, growth in financial metrics in FY21, expansion of customer base via acquisitions, valuation, endeavours to transition to a pure B2B (business to business) provider and drive revenue mix from larger corporates, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.230, as on 8 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ST1 Daily Technical Chart, Data Source: REFINITIV 

OpenLearning Limited

OLL Details

1HFY21 Results: OpenLearning Limited (ASX: OLL) operates and generates revenue from the learning platform offering short courses, micro-credentials, and qualifications. In addition, products such as platform subscription, program delivery, and value-added services constitute its portfolio.

• Gross Sales Increased: The gross sales increased by 16.6% Y-o-Y to $1.76 million in 1HFY21 due to growth in platform revenue. OLL achieved a platform revenue growth of 120% Y-o-Y by introducing the Program Delivery product line in 1HFY21.
• Rise in Cash Receipts: The cash receipts from customers rose by 39.7% Y-o-Y to $2.32 million, due to upfront payments from the SaaS customers and learners.
• ARR Growth: The Annual Recurring Revenue (ARR) reached $1.44 million, up by 27% YoY in 1HFY21, due to platform subscription growth.

Platform Revenue Growth from 1HFY19-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces liquidity risk, changes in customers’ demand/preferences towards platform usage, and COVID-19 disruptions.

Outlook:

• The company has access to students in three new countries. The University of New South Wales and five Universities from New Zealand and the U.K. have consented to accept students.
• OLL plans to solidify its position as a learning platform in Australia and Southeast Asia and focus on increasing the platform offerings.
• The company is developing (CS101 (Computer Science 101)) a new program for working professionals to target the growing technology upskilling market. OLL will categorise the revenue from CS101 under the Program Delivery product line and start on 18 October 2021.

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: The stock of OLL gave a negative return of 15.99% in the past three months and a negative return of ~41.66% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $0.105. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ median EV/Sales multiple, considering its rise in revenue, cash receipts, and platform revenue growth. For this purpose of valuation, few peers like Reckon Limited (ASX: RKN), Livetiles Limited (ASX: LVT), Skyfii Limited (ASX: SKF), and others have been considered. Considering the current trading levels, increase in top-line and cash receipts, new product line launch in 1HFY21, valuation upside, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.105, as on 8 October 2021, 2:38 PM (GMT+10), Sydney, Eastern Australia.

OLL 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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