Stocks’ Details
 

Nearmap Limited

Uniquely Positioned for a Global Market Opportunity: Nearmap Limited (ASX: NEA) provides geospatial map technology for businesses, enterprises and government customers. As on 26 March 2020, the market capitalization of the company stood at $389.11 million. During 1H20, the company reported an increase of 31% in statutory revenue to $46.3 million, which was mainly driven by an increase in ACV (Annual Contract Value) by 23% to $96.6 million. In the same time span, global subscriptions of the company witnessed an increase of 8% to $10,081, with group average revenue per subscription increasing by 14% to $9,580.

 
Growth in ACV (Source: Company Reports)

Future Expectations and Growth Opportunities: The company has provided guidance for FY20 and expects to deliver group ACV between $102 million and $110 million. NEA is also focused on delivering a lower rate of cost in 2H20 with an aim to drive higher returns to its shareholders. The company will continue to deliver growth of 20%-40% in ACV in the medium to longer-term with the underlying churn of less than 10%. 

Stock Recommendation: As per ASX, the stock of NEA is trading very close to its 52-weeks’ lower level of $0.830, proffering a decent opportunity for the investors to enter the market. Despite the global pandemic, the company continues to provide its services and is on track to deliver new content types and additional customer utility during the second half. The company is well-prepared to navigate the uncertainty and retains a strong balance sheet. Considering the current trading levels, decent financial performance and modest outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.995, up by 15.698% on 26^th March 2020, owing to its recent update regarding the COVID-19.
 

Pushpay Holdings Limited

Solid Growth in Revenue and Expanding Operating Margin: Pushpay Holdings Limited (ASX: PPH) provides a donor management system, including donor tools, finance tools and a custom community app, to the faith sector, non-profit organizations and education providers in the US, Canada, Australia and New Zealand. As on 26 March 2020, the market capitalization of the company stood at$865.53 million. During 1H20, the company reported solid growth of 30% in total revenue to US$57.4 million and a growth of 8% in gross profit margin to 65%. This resulted in a substantial increase of 247% in NPAT to US$6.5 million, up from a loss of US$4.4 million in pcp.


1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Guidance: The company has recently stated that COVID-19 is not expected to impact the 2H20 results. PPH is experiencing a clear shift to digital, whereby the customers are utilizing mobile technology solutions to communicate. The company is expecting an overall increase in demand for its services. It has reiterated the guidance for FY20, wherein it expects operating revenue to be between US$121 million and US$124 million, gross margin of over 63%, and Total Processing Volume between US$4.8 billion and US$5 billion.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Based Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, 1USD=1.68 AUD

Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week trading range of $2.4 - $4.740, proffering an excellent opportunity for the investors for accumulation. The company is actively working to navigate this hard time and using it as an opportunity to strengthen its connections. During 1H20, gross margin of the company witnessed an improvement over the previous half and stood at 65%, up from 63.1%. In the same time span, net margin of the company stood at 11.6%, higher than the industry median of 7.9%. Considering the current trading levels, improvement in margins and decent outlook, we have valued the stock using EV/Sales multiple based relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $3.10, down by 1.274% on 26 March 2020.

ELMO Software Limited

Accelerated Growth Strategy: ELMO Software Limited (ASX: ELO) is one of the leading providers of Software-as-a-Service (SaaS), cloud-based human resources and payroll solutions in Australia. As on 26 March 2020, the market capitalization of the company stood at $304.68 million. The company is ensuring long term sustainable growth through investment in product and people and has built a leading integrated cloud HR, payroll, rostering / time & attendance solution. During 1H20, the company continued to deliver on its growth strategy with an increase of 42.8% in its annualized recurring revenue to $52 million and a growth of 30.9% in its customer base to 1,478. 


1H20 Financial and Operational Highlights (Source: Company Reports)

Growth Opportunities and Future Guidance:Owing to the outbreak of COVID-19, the company anticipates a deferral in purchasing decisions of prospective and existing customers. Thus, it has updated its FY20 guidance and expects revenue between $50 million to $52 million, as compared to the previously guided range of $53.3 million - $55.3 million. ELMO is well capitalized with a cash balance of $71 million and no debt and is operating well with no disruption through this period.

Stock Recommendation: As per ASX, the stock of ELO is trading very close to its 52-weeks’ low level of $3.660, proffering a good opportunity for the investors to enter the market. The company is expecting an acceleration in demand for cloud-based technology in the medium term. During FY19, gross margin of the company stood at 86.5%, higher than the industry median of 71.8%. Considering the trading levels, higher gross margin and decent growth opportunities, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.070, up by 0.494% on 26 March 2020. 

Bravura Solutions Limited

1H20 Results on Track: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients operating in the wealth management and funds administration industries. As on 26 March 2020, the market capitalization of the company stood at $862.38 million. During 1H20, BVS delivered revenue growth of 6% to $135.1 million and EBITDA growth of 7.3% to $25.5 million. This was mainly due to a strong sales pipeline with significant opportunities across all key markets. The company also reported a strong financial position with cash of $100 million. The decent financial position of the company enabled the Board to declare an interim dividend of 5.5 cents per share, bringing the half-year payout ratio to 68% of 1H20 NPAT. 

 
1H20 Financial Highlights (Source: Company Reports)

What to Expect: The company has a strong sales pipeline with a growing number of transformational opportunities driven by continuing project activity with existing and new clients. Strong growth, increasing scale and greater efficiency are driving operating leverage expansion. BVS expects that acquisitions are likely to make an additional contribution of approximately $3 million to FY20 NPAT. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation 

EV/Sales Multiple Based Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of BVS is inclined towards its 52-weeks’ low level of $2.920, proffering a decent opportunity for accumulation. During 1H20, gross margin of the company stood at 92.6%, higher than the industry median of 84.1%. In the same time span, net margin of the company witnessed an improvement over the previous half and stood at 14.7%, up from 12.6% in 2H19. Considering the trading levels, higher margins and strong sales pipeline, we have valued the stock using EV/Sales multiple based relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have considered peers like TechnologyOne Ltd (ASX: TNE), Pushpay Holdings Ltd (ASX: PPH) and Hub24 Ltd (ASX: HUB). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $3.760, up by 6.215% on 26 March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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