Catapult Group International Limited

Soft launch of Vector platform: Catapult Group International Limited (ASX: CAT) is involved in the development and sale of wearable tracking solutions and analytics to elite sporting teams, leagues and associations. The market capitalisation of the company stood at ~A$230.03 Mn on 21^st June 2019. Recently, the company provided an update on the soft launch of Vector, its next-generation wearable technology. The Vector soft launch started in May 2019 to a small number of Australian teams. The company added that the Vector combines the technology of both GPS and LPS onboard the unit enabling the company to quantify athlete data in all environments with greater confidence than ever before.

The company’s total revenue stood at $43.0Mn in 1H FY19, reflecting a growth of 32% on pcp, which is driven by strong results in elite wearables.The higher capital revenue contribution was impacted by a $1.4m increase in Prosumer sales. Adding to that, the elite subscription revenue as a % of total elite revenue stood at 73%. The employee expenses witnessed a rise of 13% down from 39% on pro-forma basis in 1H FY18. The increased employee expenses were largely driven by investment in sales and marketing.

Profit and Loss Statement (Source: Company Reports)
 
 
What to Expect: As per the annual report, it is uniquely placed in order to continue its journey as a high growth global business operating at the intersection of technology and sport. The company is excited about the opportunity for continued strong growth from its elite core business.

Stock Recommendation: The gross margin of the company stood at 72.9% in 1H FY19 against the industry median of 24.2%. The current ratio of the company stood at 1.21x in 1H FY19, reflecting a growth of 39.1% on YoY basis. This implies that that company is improving its position to address its short-term obligations and it can also be assumed that the company might make deployments towards its business activities which could help in achieving long-term growth.
On the stock’s performance front, it had generated a return of 40.48% and 47.50% in the time span of three months and six months, respectively and is trading slightly towards a 52-week high price of $1.430. Hence, considering the above-stated facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of A$1.180 per share (down 2.075% on 21^st June 2019).

TechnologyOne Limited

Strong SaaS Growth:TechnologyOne Limited (ASX: TNE) is engaged in the development, marketing, sales, implementation, and support of fully integrated enterprise business software solutions. The half-yearly results clearly show that the company has a strong SaaS growth engine, with its SaaS Fees recognised up 42% to $37.5 million. The company increased the number of large-scale enterprise SaaS customers by 39% to 389 as compared to 280 at 31 March 2018. These customers have substantial users, making it the largest single instance ERP SaaS offering in Australia. The SaaS ACV continues to grow very fast and is up 45%. Moreover, the company delivered record revenue, SaaS fees, Annual Contract Value (ACV) and profits. The operating cash flow of the company increased from a $9.5 million outflow for the half-year ended 31 March 2018 to a $7.8 million inflow for the half-year ended 31 March 2019, reflecting the impact of SaaS reporting which included AASB 15 Revenue from contracts with customers and capitalized development costs.
 

Financial Key Metrics (Source: Company Reports)
 
2019 has been a transition year to AASB15 and reporting as a SaaS company. Over the last few years, the company has made the transition to a SaaS company, reengineering its business, systems and processes and retrained the entire organization. This has been a significant and very complex undertaking. On 21 May, the company declared an interim dividend on ordinary shares of 3.15 cents per share in respect of the 2019 financial year. The total amount of the dividend is $9.99 million and is 75% franked.
 
Uncertain Regulatory Challenges: The company’s sales pipeline opportunities for FY19 is strong, placing the company for further growth in bottom-line in the year. The SAAS business will continue to grow strongly and profitably.
 
The stock had significant volatility with 29.51% return over the past six months and a -1.92% over the past one month. Currently, the stock is trading slightly towards the 52-week high level of $9.395. Hence, considering aforesaid facts and looking volatility in the stock over the past few months, we have a wait and watch stance on the stock at the current market price of $7.680 per share (down 7.022% on 21 June 2019). 

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