Stocks’ Details

Iress Limited

Completion of Acquisition: Iress Limited (ASX: IRE) is engaged in the provisioning of IT solutions to financial market participants and wealth manager. The market capitalisation of the company stood at ~$1.97 billion as on 9^th December 2020. Recently, IRE has wrapped up the 100% acquisition of OneVue Holdings Limited and paid 43 cents per share as a consideration to the shareholders of OneVue. The company added that the acquisition might assist the company in cementing the administration of managed funds, superannuation and investment, along with its position in technology and data. In addition, the combination of both the businesses would provide a unique opportunity to deliver end-to-end investment infrastructure.

Growth in Topline: During the quarter ended September 2020 (Q3 FY20), the company reported operating revenue amounting to $133.8 million, reflecting a rise of 3% over Q3 FY19. This was fueled by strong performance in APAC and Mortgages. In the first nine months of 2020, APAC segment experienced revenue growth of 8%, supported by ongoing demand for Xplan and Super solutions. Segment profit for the quarter stood at $37.2 million against $36.4 million in Q3 FY19. This indicates revenue growth combined with stable margins. In addition, the company’s revenue in 1H FY20 amounted to $270.7 million with a growth of 12% (on constant currency basis) over pcp.

Key Metrics (Source: Company Reports)

Outlook: With respect to the integration of OneVue Holding Limited, the company has a clear plan to integrate and deliver new investment infrastructure-as-a-service to clients, which will start from 2021. IRE is expecting increased revenue momentum as well as improved profitability in Q4 FY20. In addition, the company would also be benefited from additional cost savings. On the back of decent performance in Q3 FY20, and the contribution from recurring revenues of around 90% of group revenue, the company has reinstated profit guidance for the FY20 results.  The company is likely to release its FY20 results on 20^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company ended 1H FY20 with the cash balance of $100.0 million as compared to $29.2 million in 1H FY19. On a technical analysis front, the stock has a support level of ~$9.384 and a resistance level of ~$11.352. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have considered Link Administration Holdings Ltd (ASX: LNK), Codan Ltd (ASX: CDA), TechnologyOne Ltd (ASX: TNE), etc., as peers. Thus, considering the decent growth in revenue, acquisition of OneVue, and expected growth in revenue and profitability, we give a “Buy” recommendation on the stock at the current market price of $10.450 per share, up by 2.050% on 9^th December 2020.

Sezzle Inc

Record Performance in BCFM Weekend: Sezzle Inc (ASX: SZL) is involved in the operation of a payment platform. The market capitalisation of the company stood at ~$1.13 billion as on 9^th December 2020. Recently, the company has released its performance metrics for November 2020 and the four days of Black Friday/Cyber Monday (BFCM) weekend, wherein, it created a new record with Underlying merchant sale (UMS) run-rate of US$1.36 billion and surpassed the year-end guidance of US$1.0 billion. The company’s active consumer has increased to more than 2 million, and active merchants have now surpassed over 24,800. During Q3 FY20, the company reported underlying merchant sales of US$228 million, reflecting a rise of 231.5% on YoY basis. The company added that the repeat usage has increased for 21 straight months, which happens to be a key driver for lower loss rates and enhancing Net Transaction Margin.

Key Metrics (Source: Company Reports)

Outlook: The company believes that it is in a decent position for future business growth on the back of decent performance in BCFM weekend and Q3 FY20.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company closed September quarter with a strong balance sheet supported by a cash balance of ~US$1.17 billion as compared to US$55.7 million as on 30^th June 2020. This enables SZL to carry out its growth strategies and navigate the impacts of COVID-19. The stock of SZL has corrected by 23.58% and 16.74% in the last one and three months, respectively. On a technical analysis front, the stock has a support level of ~$5.151 and a resistance level of ~$6.680. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the said purposes, we have considered Zip Co Ltd (ASX: Z1P), Afterpay Ltd (ASX: APT), Pushpay Holdings Ltd (ASX: PPH), etc., as peers. Hence, in light of record performance in November month, rising UMS and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $5.660 per share, down by 2.077% on 9^th December 2020.

FINEOS Corporation Holdings PLC

Acquisition of Limelight Health: FINEOS Corporation Holdings PLC (ASX: FCL) is involved in the research, development, marketing and supply of software products for the Life, Accident and Health (LA&H) insurance industry. The market capitalisation of the company stood at ~$1.12 billion as on 9^th December 2020. The company commenced Q1 FY21 with a growth of 18% in cash receipts to €30.1 million as compared to €25.5 million in the previous quarter. During the quarter, the company finished the acquisition of Limelight Health at a consideration of US$75 million. The company added that the acquisition is highly complementary to its strategy of enhancing its focus on the North American market and accelerating its sales, marketing and product development capabilities in the region. During FY20, the total revenue of the company stood at €87.8 million, reflecting a rise of 39.8% on FY19. Statutory EBITDA for the year amounted to €13.3 million, up 64.6% from €8.1 million in FY19.

Cash Flows from Operating Activities (Source: Company Reports)

Outlook: For FY21, the company is optimistic about attaining revenue growth levels despite the global headwinds and uncertainty caused by the COVID-19 pandemic. The company is expecting a topline growth of 20%, which include subscription revenue growth of 30%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As on 30^th September 2020, cash balance of the company stood at €34.9 million against €39.8 million as on 30^th June 2020. On a technical analysis front, the stock has a support level of ~$3.54 and a resistance level of ~$4.227. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the said purposes, we have considered Infomedia Ltd (ASX: IFM), Integrated Research Ltd (ASX: IRI), LiveHire Ltd (ASX: LVH), etc., as peers. Thus, considering the decent growth in topline, rising cash receipts, acquisition of Limelight Health, expected revenue growth in FY21, we give a “Buy” recommendation on the stock at the current market price of $3.830 per share, up by 2.956% on 9^th December 2020.

Altium Limited

Record Growth in Subscribers: Altium Limited (ASX: ALU) is involved in the development and sales of computer software for the design of electronic products. The market capitalisation of the company stood at $4.84 billion as on 9^th December 2020. For the year ended 30^th June 2020, the company recorded revenue growth of 10% to US$189 million supported by solid performances in all core business units and key regions. Profit before tax for the period increased by 12% to US$65 million. ALU also witnessed record growth of 17% in the subscription base to 51,006 subscribers. The company has paid an unfranked final dividend of AU19 cents per share on 24^th September 2020, which showcases the growth of 6% over FY19.

Key Financials (Source: Company Reports)

Outlook: With respect to long-term focus, the company is targeting revenue of US$500 million in and 100,000 subscribers by 2025. However, due to COVID-19 pandemic, ALU also expects a delay of 6-12 months in achieving revenue of US$500.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Looking forward, the company would pursue M&A opportunities in order to support the expansion of Total Addressable Market (TAM) as well as the monetization of its new digital platform Altium 365 for the electronics industry. The company exited FY20 with an increased cash balance of US$93 million. On a technical analysis front, the stock has a support level of ~$32.927 and a resistance level of ~$40.250. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). For the said purposes, we have considered WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), NEXTDC Ltd (ASX: NXT), etc., as peers. Thus, in light of increased returns to shareholders in the form of dividend, growth in topline, and long-term targets, we give a “Hold” recommendation on the stock at the current market price of $37.550 per share, up by 1.568% on 9^th December 2020.

Nearmap Ltd

Growth in Annualised Contract Value: Nearmap Ltd (ASX: NEA) is engaged in the provisioning of geospatial map technology for business, enterprises and government customers. The market capitalisation of the company stood at ~$1.06 billion as on 9^th December 2020. For the year ended 30^th June 2020, the company reported Annualised Contract Value (ACV) of $106.4 million as compared to $90.2 million in FY19. Statutory revenue for the year amounted to $96.7 million, indicating a rise of 25% over pcp. In addition, the company’s business showcased strong resilience in spite of uncertainty caused by COVID-19, which resulted in the incremental ACV of $9.8 million in 2H FY20.

ACV Growth (Source: Company Reports)

Capital Raising to Support Growth Investments: In the month of October 2020, the company finished a share purchase plan and raised $95.2 million. This follows a successful institutional placement of $72.1 million worth of shares. The capital raising would ramp up its growth investments and expand its leadership position in the market in which it operates.  

Outlook: For FY21, the company is expecting to report Annual Contract Value in the range of $120 million to $128 million on a constant currency basis. In addition, NEA would continue to target 20-40% ACV growth in the medium to long term. Moreover, the company would also continue to create new and value-adding tools and functionality to its growing customer base.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company seems to be fully financed for future growth on the back of recent capital raising and new growth initiatives. On a technical analysis front, the stock has a support level of ~$1.977 and a resistance level of ~$2.708. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). For the said purposes, we have considered TechnologyOne Ltd (ASX: TNE), Codan Ltd (ASX: CDA), Infomedia Ltd (ASX: IFM), etc., as peers. Hence, the company’s growth in ACV, strong resilience, decent outlook and returns in the past months, we give a “Hold” recommendation on the stock at the current market price of $2.190 per share, up by 1.338% on 9^th December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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