ApplyDirect Limited

Signing of Agreement:ApplyDirect Limited (ASX: AD1) is a provider of online database and search platform for e-recruitment. It has a market capitalisation of A$9.32 Mn as on 17^th September 2019. Recently, the company has announced that its fully owned subsidiary Utility Software Services inked an agreement to provide iGENO Pty Ltd with a comprehensive managed services solution for its customer service operations including the use of its SaaS platform. In another update, the company announced that it has issued 23,333,333 fully paid ordinary shares at the issue price of $0.015. The shares have been issued under a private placement to cornerstone investor.
When it comes to the financial performance of FY19, the company witnessed a rise of 13.3% in total operating revenue as compared to the prior period which was mainly because of the continued strong contribution from the existing client base and the addition of a diversified revenue stream through the acquisition of Utility Software Services Pty Ltd on 22^nd March 2019. During FY 2019, the company has extended the managed services contract with the Victorian Government for a further 12-month term.


Profit & Loss Statement (Source: Company Reports)

What to Expect:AD1 has realised a cost run-rate reduction of around $3 Mn per annum as a result of the significant cost and capability leverage available through acquisition of Utility Software Services Pty Ltd. This implies that the diversified revenue stream has been added without an increase in the company’s pre-acquisition cost base closing the gap to break-even. Further cost savings are expected to be realised in 1H FY20. It was mentioned that ApplyDirect and USS have strong pipelines that are anticipated to continue to convert.

Stock Recommendation:The company raised around $1.83 Mn subsequent to the financial year-end through a placement to a cornerstone investor, Smedley Family Office, and share purchase plan. The Board of Directors of the company anticipates that the significant contract wins, revenue pipeline, reduced cost base and the recent recapitalisation via placement and share purchase plan would likely take the company to a position of operating break-even in 2H FY20. As per ASX, the stock of ApplyDirect Limited is trading lower to its 52-week low high average. It can be said that the current trading levels are offering a decent opportunity to make entry into the stock.
Hence, considering the current trading levels and decent outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.019 per share, up 11.765% on 17^th September 2019. It looks like the upside movement in the stock is largely due to signing of the agreement by its subsidiary, Utility Software Services.
 

K2 Asset Management Holdings Ltd

Monthly Funds Under Management:K2 Asset Management Holdings Ltd (ASX: KAM) is a holding company of K2 Asset Management Ltd, KII Pty Ltd as well as Trusuper Pty Ltd. The principal activity of K2 Asset Management Ltd is funds management. KAM has a market capitalisation of A$10.13 Mn as on 17^th September 2019. Recently,KAM through a release dated 2^nd September 2019, announced total funds under management of the funds managed by K2 Asset Management Ltd and fund performance for the month of August. The following picture depicts an overview of K2 funds:

 
Funds’ Performance (Source: Company Reports)

Financial Performance:KAM stated that FY19 was a difficult year for active investment managers. It added that the passive investment strategies continued to play a dominant role for investors, with market participants appearing happy to pay any price for a select basket of index stocks. It was mentioned that this is the first financial year K2 has recorded a net loss before income tax. In accordance with funds under management and fund performance, K2 received management fees amounting to $4,366,126 and performance fees of $16,835 for the year.

Future Aspects:As per annual report 2019, the company’s focused on absolute investment returns for its unitholders has not been changed. Long term growth is the core of its business and its 20-year track record stands as witness. Investing with a valuation metric has shown to outperform in the long run and history shows that valuations matter. The cost base has and would continue to be “right sized” with expenses expected to be declined by more than 30% in the 2020 financial year.

Stock Recommendation:K2 remains in a strong balance sheet position holding $12.6 Mn in cash. In FY19, it made significant progress with its partnership with Principals Funds Management by accessing quality participants in the wholesale market. The business has consistently decreased expenses during FY19 in order to ensure they stayed in line with budgeted income.

The current ratio of the company stood at 10.11x in FY19 as compared to the industry median of 1.46x, which represents that the company is in a sound position to address its short-term obligations as compared to the broader industry.
As per ASX, the stock of K2 Asset Management Holdings Ltd is trading closer to its 52-week lower levels. Therefore, considering the above-stated facts, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.049 per share, up 16.667% on 17^th September 2019.

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