Appen Limited

APX Details

Key Takeaways from Recent Trading Update: Appen Limited (ASX: APX) is involved in the collection and labelling of images, text, speech, audio, video, and other data that are used for building and maintaining artificial intelligence systems.

• Announced New Organisational Structure: In line with its product-led and customer-centric strategy, the company has announced a new organisational structure, which consists of four customer-facing business units - Global, Enterprise, China and Government.
• Change in Reporting Currency: APX plans to change its reporting currency from Australian dollars to US dollars.
• YTD Revenue Status: At the end of April 2021, the company’s year-to-date revenue plus orders in hand for delivery for FY21 stood at ~US$260 million.

FY20 Result Highlights:

• Rise in Revenue: FY20 Revenue stood at A$599.9 million, up by 12% on the previous year, driven by the increase in the revenue from China and growth in the Relevance segment.
• Rise in Statutory EBITDA: APX reported a statutory EBITDA of A$107.9 million, up 23% YoY.
• Final Dividend Paid: For H2FY20, APX has paid a final dividend of 5.5 cps, 50% franked, up 10% on the 2019 final dividend.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risk:

• Data Privacy Risk: The company manages large amounts of data, including commercially sensitive and personally identifiable information. This exposes it to the risk of data privacy and cybersecurity.

• Foreign Currency Risk: The company is exposed to the risks associated with foreign currency exchange rates fluctuations.

Outlook: The company expects FY21 underlying EBITDA to be in the range of US$83-90 million. The review and restructure of APX’s operating model are expected to generate annualised gross savings (before reinvestment) of US$15 million from 2022. The company recently announced that it would release its H1FY21 (six months ended 30 June 2021) results on 26 August 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: Over the last three months, the stock has corrected by 23.45% and is inclined towards its 52-weeks low price of $10.650, offering investors a decent opportunity for accumulation. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight discount to its peer average P/E (NTM Trading multiple), considering the decline in speech and image revenue, rise in cash cycle, associated key risks, and also taking into consideration that the company has been trading at a discount in the past 3-years over its peer median. We have taken peers like Altium Ltd (ASX: ALU), TechnologyOne Ltd (ASX: TNE), Iress Ltd (ASX: IRE), etc. Considering the company’s decent performance in FY20, introduction of a new organisational structure, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of A$12.480 (as on July 12, 2021, 1.15 AM (GMT+10), Sydney, Eastern Australia).

APX Daily Technical Chart, Data Source: REFINITIV

Audinate Group Limited

AD8 Details

Takeaway from Recent Trading Update: Audinate Group Limited (ASX:AD8) is involved in providing professional audio networking technology globally.

• Rise in Revenue: In an update provided on 12 July 2021, the company informed that it has earned revenue of around US$20.4 million (A$33.4 million) in FY21 (year ended 30 June 2021), up 23% on the previous year.
• Launch Of the First Dante Video Products: One of the important highlights of FY21 was the launch of the first Dante video products manufactured by its customers - Bolin Technology (Bolin) and Patton Electronics (Patton).

Revenue Trend (Source: Analysis by Kalkine Group)

Q3FY21 Result Highlights: For Q3FY21, the company reported revenue of US$7.0 million, up 31% on pcp. Over the quarter, the company was benefited from channel fill of newly released Bluetooth and USB-C AVIO adaptors. AD8 also witnessed strengthening of chips, cards and modules revenue during the quarter.

Key Risks:

• Global Uncertainties: The company is exposed to the risks associated with the uncertainties in global supply of chips and electronic components.
• Foreign Currency Risk: The company is also exposed to the risks related to foreign currency exchange rates, particularly US dollar.

Outlook: In the recent trading update, the company notified that it is well placed to return to US$ revenue growth, in line with current market expectations in FY22. The company expects the uncertainties in global supply of chips and electronic components to continue for the remainder of CY21. The company expect to release its FY21 results on 23 August 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 AD8 has provided a return of 32.36% in the last three months and 67.44% in the last nine months. The stock is currently inclined towards its 52-week high price of $10.07. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM Trading multiple), considering the rise in FY21 revenue, decent outlook and also taking into consideration that the company has been trading at a premium in the past 3-years over its peer median. We have taken peers like Catapult Group International Ltd (ASX: CAT), Infomedia Ltd (ASX: IFM), Altium Ltd (ASX: ILU), etc. Considering the decent returns in the last three and nine-months period, uncertainties in global supply of chips and electronic components, current trading level and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the closing price of $9.98, up by ~8.478% as on 12 July 2021, owing to the recent FY21 trading update.

AD8 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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