Category: Technology Stocks

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

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Wisetech FVE Significantly Increased Following Evidence of Strategy

Business Strategy and Outlook

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame. Despite strong revenue growth, WiseTech still comprises less than 5% of the global logistics software market, much of which is created in-house by logistics companies. 

Although WiseTech lacks the scale of much larger enterprise resource planning, or ERP, software providers such as SAP and Oracle, the company’s niche focus and innovative culture have enabled it to outmanoeuvre larger peers. Descartes increased revenue at a CAGR of 14% over the five years to fiscal 2021 we forecast a CAGR of 14% over the next decade. WiseTech’s cloud-based platform is being adopted by logistics companies as a replacement for legacy and in-house developed systems, and we attribute client wins to the superior functionality and usability of the software and proven global SaaS platform.

Financial Strength

WiseTech is in good financial health thanks to its capital-light business model, highly recurring earnings, and narrow economic moat. The company is effectively equity-funded with no debt. Founder and CEO Richard White to remain reluctant to undertake large acquisitions and leverage the balance sheet. However, it’s not uncommon for technology companies to forgo short term profitability for long-term strategic benefits, and we are comfortable with management’s long-term focus.

WiseTech in a much more bullish light and have dramatically raised our earnings forecasts and fair value estimate to AUD 60.00 from AUD 9.00 per share. Our forecast revenue CAGR over the next decade, to 19% from 12% and our terminal EBIT margin to 37% from 32%, both of which add around AUD 14 to the fair value, or 28% of the total fair value increase. WiseTech’s cost of equity to 7.5% from 9.0% and increased the terminal growth rate to 4.9% from 2.2%, both of which add AUD 11 to our fair value or 22% of the total fair value increase.

WiseTech’s fair value increase is largely due to a higher terminal value, as 83% of our prior fair value was attributable to the terminal value. The terminal value increase is driven by the following four factors which have approximately equal impacts. The strong fiscal 2021 result, improved disclosure, and better than expected fiscal 2022 outlook, which increase our confidence in WiseTech’s global expansion strategy.

Bulls Say’s

  • WiseTech has a narrow economic moat based on customer switching costs, as evidenced by a very high customer retention rate of over 99% for the past four years.
  • WiseTech’s revenue is expected to continue growing strongly over the next decade as its logistics software platform replaces in-house and legacy software solutions. A high degree of operating leverage should create even stronger EPS growth.
  • The capital-light business model should enable the balance sheet to remain debt-free, with operating cash flow covering research and development spending and dividend payments.

Company Profile 

WiseTech is a leading global provider of logistics software, and 19 of the largest 20 third-party logistics companies are customers of the firm. The company has a very strong customer retention rate of over 99% per year, and is growing quickly as its global SaaS platform replaces legacy software. The company reinvests around 30% of revenue into research and development, but around 50% of this cost is capitalised, leading to poor cash conversion. Founder Richard White remains CEO and the largest shareholder.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Link Administration Holdings announced $150 million on-market buyback

Investment Thesis

  • Leveraged on ongoing administration outsourcing by retail super funds.
  • LNK is still vulnerable to any further increase in PEXA’s valuation.
  • Fund Administration contract wins and increased market activity
  • Delivering on its offshore expansion storey successfully.
  • The cost out programme improves efficiency.
  • Uncertainty about Brexit will be removed, as will the potential discount assumed in current valuation / share price.
  • Bolt-on acquisitions that add value.
  • Currency movements that are favourable.
  • Capital management – As part of the FY21 results, a $150 million on-market buyback was announced.

Key Risks

  • Lower market activity and business / investor confidence.
  • Fund administration lost major client contracts.
  • Adverse changes in super regulatory environment e.g – super account consolidation.
  • Lack of product development.
  • Fluctuation in currency movement.
  • Discontinuation of the current share buyback to conduct a large-scale acquisition. 

FY21 Results Highlights 

  • Revenue of $1,160m was a -6% decline, “due to the impact of Covid-19 on the European business and regulatory changes in retirement and superannuation solutions resulting in lower following the transfer of many low balance inactive accounts to the ATO”.
  • Operating EBIT of $141m was a -21% decline.
  • Operating NPATA of $113m was -18% lower PEXA’s positive $32.7m contribution.
  • Statutory NPAT of -$163m, was a worst result that the -$103m in FY20, due to non-cash impairment charge of $183m for the Banking & Credit Management business which continues to see low levels of new activity because of Covid-19 and high levels of government intervention reducing portfolio sales in this market.
  • LNK saw net operating cash flow of $293m, down -8%. Net operating cash flow conversion was 114%.
  • LNK retained a strong balance sheet with net debt was down $296m to $455m and leverage ratio (Net Debt/EBITDA) down from 2.7x to 1.8x (below the bottom of guidance leverage ratio).
  • LNK received $180m of net proceeds received from the PEXA IPO.
  • Company announced an on-market buyback of up to $150m.

Company Profile 

Link Administration Holding Ltd (LNK) is the largest provider of superannuation fund administration services to super fund in Australia. Further, the Company is also a leading provider of shareholder management and analytics, share registry and other services to corporates in Australia and globally. The Company has 5 main divisions:(1)Retirement & Super Solutions (RSS), (2) Corporate Markets (CM), (3) Technology &Operations (T&O), (4)Fund Solutions (FS) and (5) Banking & Credit Management (BCM). LNK was listed on the ASX in October 2015. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth

providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM.

Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth:

Veeva System reported strong quarterly results, with total revenue of $456 million and adjusted EPS of $0.94 slightly exceeding guidance ($450 million-$452 million and $0.85-0.86, respectively). Subscription services revenue grew 29% year over year, due to the addition of new CRM customers during the quarter, add-on module adoption, and strong Vault growth. The company reported the signing of its first top 20 pharma company to the Vault Safety platform and strong growth of other Vault modules during the quarter.

Despite the positive results and a nominal bump to fiscal 2022 revenue and EPS guidance, shares fell nearly 8% after trading hours, with investors likely overreacting to management’s commentary on macro trends impacting customer relationship management software (CRM) growth.

Financial Strength

Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. It is assumed that the company will continue to use the cash it generates from operations to fund future growth opportunities. 

During FY 2021, the firm reported revenue of USD Million 1,465 which is 32.7 % higher in relation to the previous year while its EBIT stood at USD Million 378.The free cash flow for the firm for the year 2021 was USD Million 342 while its diluted EPS was USD 2.94.

Bull Says

  • Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
  • The rapid adoption of the company’s new modules continues to entrench Veeva into mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
  • Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Profile:

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share among existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

( Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

NEXTDC reports strong results as of ongoing cloud adoption

Investment Thesis

  • Australia is still in the early stages of cloud adoption. The NBN’s implementation will drive demand from cloud providers for NXT’s asset follows more efficient and cheaper broadband. 
  • Extremely high-quality collection of sites.
  • Tier 4 gold centers focus on the premium end where pricing is more stable.
  • NXT has balance sheet capacity to handle more debt and self fund expansion through operating cash flow from the base building. 
  • Capital intensive nature of the sector provides a high barrier to entry.
  • Government adoption of cloud and the subsequent need to outsource present an opportunity.
  • Sticky customers are unlikely to churn which creates a strong customer ecosystem.
  • The Company’s national footprint enables it to scale more effectively than competitors.
  • Margin expansions demonstrate strong operating leverage.
  • Additional capacity has been announced.
  • Given the global demand for data, mergers and acquisitions are on the rise.

Key Risks

  • There is no product diversification (NXT only operates data centres).
  • NXT and competitors have significantly increased their supply of data centres.
  • Delays in the construction or ramp-up of data centres have an impact on the earnings growth profile.
  • Pressures from competitors (price discounting by NXT or competitors).
  • Higher power densities in Australia as a result of increased average rack power utilization.
  • Inadequate customer demand to generate a satisfactory return on investment.
  • NXT’s ability to expand and pursue growth opportunities may be hampered if sufficient capital is not obtained on favourable terms.
  • The risk of leasing (NXT does not own the land or building where its data centres are situated).

FY21 results highlights 

  • Data center service revenue was up +23% to $246.1million and at the bottom end of upgraded guidance of $246m to $251m.
  • Underlying EBITDA increased by +29 percent to $134.5 million, exceeding the company’s revised guidance of $130 million to $133 million.
  • Operating cash flow increased by 148% to $133.2 million.
  • Capex was down -18% to $301 million, falling short of the $380-400 million range.
  • NXT had $1.7 billion in liquidity (cash and undrawn debt facilities) at the end of the fiscal year, and its balance sheet strength is supported by $2.6 billion in total assets, indicating that it is well capitalised for growth.
  • Contract utilisation increased by 8% to 75.5MW. (7) NXT’s customer base increased by 183 (or 13%) to 1,547.
  • Interconnections grew 1,667 (or +13%) to 14,718, and now equates to ~7.7% of recurring revenue.

Company Profile 

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Pro Medicus reports strong FY21 results beating market estimates

Investment Thesis:

  • Management believes they are 24 months ahead of their competitors driven by proven and market leading technology, thereby making PME’s product command a price premium. 
  • New contract wins by Pro Medicus (more win rates plus higher value per contract) and increase in usage by existing clients. 
  • Launch of new products namely; Enterprise imaging solutions, exploring other “ologies” such as cardiology and ophthalmology. 
  • Development of artificial intelligence (AI) capabilities. 
  • Leveraged to the digital health data thematic and industry’s transition to cloud. 
  • Business expansion into new geographies.
  • Probability of Mergers and Acquisitions.

Key Risks:

  • Stock price exposed to more volatility on account of high valuation.
  • Long lead time to close contracts and scalability of new contract leads to disappointment with reference to market anticipations. 
  • Renewal of contracts (pricing pressure) and potential budget reduction at hospitals leads to the delay of software upgrades / investment. 
  • Large scale players and new entrants with innovative technology offer increase in competitive pressures. 
  • Reliability of system i.e. data breach or drop in quality. 
  • Regulatory / funding changes, for instance, reimbursement changes leading to lower imaging volumes.

Key Highlights:

  • PME to benefit from their recent contract wins and is positively leveraged to several important themes – digital health data, replacing legacy technology with PME’s innovative platform, AI adoption in imaging, Electronic Health Records (EHR) driving PME’s Enterprise Imaging solutions and PME’s cloud solution substantially increasing its concerned market.
  • Pro Medicus Ltd (PME) reported solid FY21 results outperforming the market estimates. The profit before tax of $42.6m, was up +41.0% mainly because of significant revenue growth in three key jurisdictions – North America, up +18.0%, Australia, up +23.4% and Europe, up +25.7%.
  • Revenue of $67.9m is up by 19.5% 
  • Underlying profit before tax $42.6m, which is up by 41.0%  
  • Net profit of $30.9m is up by 33.7%. 
  • PME remains debt-free with cash reserves at year-end of $61.8m, 42.4% higher than pcp. 
  • The Board declared a fully franked final dividend of 8c per share, which brings the total FY21 dividend to 15cps.
  • In FY21, PME won key contracts which are as follows: (1) NYU Langone (A$25.0m, 7-year) (2) Zwanger-Pesiri (A$8.5m, 5-year renewal) (3) LMU Klinikum (A$10.0m, 7-year) (4) Medstar Health (A$18.0m, 5-year) (5) Intermountain Healthcare (A$40.0m, 7-year) (6) University of California (A$31.0m, 7-year) (7) University of Vermont (A$14.0m, 8-year)

Company Profile:

Pro Medicus Ltd (PME) was founded in 1983 and provides a full range of radiology IT software and services to hospitals, imaging centers and health care groups globally. In Jan-09, PME purchased Visage Imaging, which has become a global provider of leading-edge enterprise imaging solutions, pioneering the best-of-breed, or Deconstructed PACSSM enterprise imaging strategy. Visage 7 technology delivers fast, multi-dimensional images streamed via an intelligent thin-client viewer. The company offers a leading suite of RIS, PACS and e-health solutions constituting one of the most comprehensive end-to-end offerings in radiology. Pro Medicus has global offices in Melbourne, Berlin (R&D) and San Diego (Sales).

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Sonic Healthcare increased its margins in both its laboratory and imaging divisions

Investment Thesis

  • Ageing Population Requires more diagnostic tests especially as medicine focuses on Preventives medicine
  • Market leading positions in Pathology(number one in Australia, Germany, Switzerland and United Kingdom number three in US). Australia is the Second leading player in the market in Imaging. 
  • Establishment of Global Channels to high barriers entry.
  • Organic growth and potential improvement from margin cost strategy on the acquisition of ongoing bolt.
  • Leveraged against a weakening dollar.
  • Globally Diversified.

Key Risks

  • Diagnostic expenses are being decreased as a result of disruptive technology.
  • Market share is being lost due to competitive threats.
  • Deregulation has resulted in the establishment of new pathology collection centres.
  • Regulative changes that are detrimental (fee cuts).
  • Growth that has been disappointing.
  • Unfavorable currency fluctuations (AUD, EUR, USD).

FY21 results highlights 

  • Revenue Growth of +28 to A$8.8 billion. In constant Currency, revenue of $9,129 million was up +33.7%, driven by Covid-19 testing revenue in each of SHL’s laboratory businesses. Base business revenue (exclude Covid testing) grew +6% versus FY20 and +4% versus FY19.
  • EBITDA growth of +81% to A$ 2.6 Billion (or +89% on constant Currency basis) driven by +97% EBITDA Growth of +89% in the laboratory division due to Covid-19 testing. 
  • Net profit growth of +149% to A$1.3 billion, reflecting growth in revenue and SHL’s strong operating leverage. 
  • Sonic Healthcare achieved margin accretion in both laboratory and imaging divisions.
  • SHL’s balance sheet is well placed with record low gearing level and liquidity of ~A$1.5bnto fund growth via acquisitions. 
  • Gearing (Net debt/[Net debt + equity) of 12.5%, interest cover (EBITA/Net interest expense) of 33.8x and debt cover (Net debt/EBITDA) of 0.4x all improved from 21.6%, 20.5x and 1.0x, respectively, at Dec-20 (and remains within covenant limit of <55%, >3.25x, and <3.5x respectively). 
  • As per its progressive dividend policy, sonic healthcare declared a final dividend of 55cps, up +8% and franked to 65%. Total dividends are up +7%.

Company Profile 

Sonic Healthcare (SHL) is a medical diagnostics company with operations in Australia, New Zealand, and Europe. The company provides a comprehensive range of pathology and diagnostic imaging services to medical practitioners, hospitals and their patients along with providing administrative services and facilities to medical practitioners. SHL has three main segments: (1) Pathology/clinical laboratory services based in Australia, NZ, UK, US, Germany, Switzerland, Belgium and Ireland. (2) Diagnostic imaging services in Australia; and (3) Other which includes medical centre operations (IPN), occupational health services (Sonic HealthPlus) and laboratory automation development (GLP Systems).

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Despite a rise in earnings, the share price of Nine Entertainment has dropped.

20025825 - closeup image of businessman drawing 3d graphics

Investment Thesis

  • Upside potential to NEC’s share price from investors ascribing a higher value for Stan, NEC’s subscription video of demand (SVOD). Stan is now cash flow positive and profitable, with margins having the potential to surprise on the upside. 
  • Relatively attractive dividend yield of ~4%. 
  • NEC is a now a much more diversified business, with revenue not dominated by traditional FTA TV but also attractive digital platforms and assets. 
  • Cost out strategy – looking to remove $230m in structural costs.  
  • Corporate activity given NEC’s strategic assets.
  • Trading below our valuation.

Key Risks

We see the following key risks to our investment thesis:

  • Competitive pressure in Free to Air (FTA) TV and SVOD. 
  • Stan growth (subscriber numbers or breakeven point) disappoints market expectations. 
  • Structural decline in TV audiences continues to impact sentiment towards the stock. 
  • Deterioration in advertising markets.
  • Cost blowouts in obtaining new programming/content.
  • Increased competition from Netflix and Disney.

FY21 Results Highlights. Relative to the pcp: 

  • Revenue of $2,331.5, up +8%. 
  • Group EBITDA of $564.7m, was up +43%. 
  • NPAT of $277.5m, was up +76%, which translates to fully diluted EPS of 15.3%, up +83%.
  • The Board declared a final dividend per share of 5.5cps which brings full year total dividends to 10.5cps, up +50%, and equates to a payout ratio of ~69% (in line with management’s policy of paying ~60-80% through the cycle).

Current trading environment and outlook

NEC did not provide specific quantitative FY22 earnings guidance but did provide significant colour: 

  • “Nine started the new financial year strongly, well supported across our platforms by advertisers from all categories. In the current quarter, Nine’s metro FTA ad revenue is expected to be up almost 20% on the same quarter last year. Forward bookings remain ahead of same day last year, with positive market momentum continuing into Q2, notwithstanding more difficult comparables, including timing of the NRL. The FTA ad market has recovered more quickly and convincingly than previously expected. FY22 will see the return of some cyclical costs – Nine currently expects FTA costs in FY22 to be ~3% higher than FY21”. 
  • 9Now: “continues its strong growth trajectory, with around 70% revenue growth in July (on pcp). Nine expects positive momentum to continue through the rest of FY22, as 9Now establishes its place in the broader digital video market”.
  • Nine Radio: “Notwithstanding the short-term impact of the lockdown on the radio market, Nine Radio’s Q1 ad revenues are expected to grow in the double-digits (%), with further share improvement across both agency and local ad sales. Coupled with Nine Radio’s restructured cost base, this is expected to underpin strong profit leverage as the ad market recovers”. 
  • Stan: “Total costs for Stan Sport in FY22 are now expected to be at the lower end of the $70-90m range previously cited. Whilst this investment will reduce Stan’s overall EBITDA in the short term (in FY22 combined EBITDA for Stan Entertainment and Stan Sport is expected to be in the low double-digit millions of dollars), over the medium and longer term, it is expected to significantly grow earnings”. 
  • Publishing: “As previously announced, Nine expects growth of $30-40m in Publishing EBITDA in FY22 on FY21”.

Company Description  

Nine Entertainment Co (NEC), through its subsidiaries, broadcast news and current affairs, sporting events, comedy, entertainment and lifestyle programs. Nine Entertainment serves customers throughout Australia. NEC has repositioned itself from a linear free-to-air broadcaster, to a creator and distributor of cross-platform, premium content. While the channel Nine Network remains core, it is now complemented by subscription video on demand (SVOD) provider Stan, a live streaming and catch-up service 9Now, digital network nine.com.au and array of digital content.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Afterpay on rapid growth with stagnant loss in fiscal year 2021

Investment Thesis:

  • With over 16 million customers and over 98,000 retail partnerships, Afterpay have the benefit of being the first mover .
  • APT and clients can profit from their data (potentially introduce data mining services).
  • Vertical expansion.
  • New revenue streams and new opportunities to drive revenue – Afterpay Money.
  • International expansion – both the U.S. and the UK are off to a solid start. The addressable market for online shopping in the United States is $630 billion dollars, whereas the market in the United Kingdom is $130 billion dollars. 
  • Additional opportunities are anticipated to arise as a result of the recently announced partnerships with Visa, Squarespace, and Stripe.
  • Strong management team.

Key Risks:

  • High valuation will lead to de-rating and thereby creating miss expectation in growth rates.
  • Expansion into new verticals disappoints management and market expectations.
  • Execution risk with international expansion.
  • Increased competition from major player(s).
  •  Increased regulation. 
  • Significant data breach.
  •  Deal with Square Inc fails to complete.

Key highlights of FY21:  Relative to the pcp:( The abbreviation for p.c.p is previous corresponding period . Herein, the year 2020 is considered as p.c.p)

  • Group total income was up by 78% to $924.7m, consisting of Afterpay up by 90% to $822.3m, Pay Now down by 16% to $13.8m and Other income up +29% to $88.6m.
  • The gross loss of Afterpay as % of underlying sales unchanged at 0.9%in the year 2021.
  • Group reported net margin of $443.3m which was up by 70%.
  • Afterpay reported net margin of $434.1m up by 74 % while its net transaction loss margin was 0.6 % (up from 0.4 percent), and net margin as a percentage of underlying sales was 2.1 percent (down from 2.3 percent), impacted by lower margin from newer international regions that are still in the early stages of their lifecycle.
  • Despite increased underlying sales and contribution from new territories, the Afterpay income margin of 3.9 percent remained steady over the pcp, with merchant income margins largely stable across all regions.
  • Due to increased marketing and talent expenditure, the group’s underlying operating profitability (EBITDA) fell by 13 % to $38.7 million. The loss after tax increased to $159.4 million from $22.9 million owing principally to an increase in the valuation of the ClearPay UK minority investment.
  • Management continues to invest heavily in the company in order to expand into new markets and raise brand awareness. Employment expenses increased by 75% year over year to $150.9 million, while operational expenses increased by 104 percent to $298.6 million.
  • APT has plenty of cash, with management claiming that it has the capacity to support an additional $40 billion in underlying sales on top of its existing annualised run rate of $24 billion.

 APT and Square Inc announced a Scheme Implementation Deed on August 2nd, under which Square Inc will purchase all of APT’s outstanding shares in a transaction valued at $39 billion at the time. . The deal is expected to finalise in the first quarter of FY22.

Company Profile

Afterpay Ltd (APT) is an Australian-based technology-driven payments company. The Afterpay and Touch products and businesses are part of APT. The company’s business model is “purchase now, take now, pay later.” Merchants sign up for Afterpay, which allows their retail customers to pay in four equal instalments, interest-free. APT pays merchants up front and assumes the credit and fraud risk upon themselves. Customers can pay with a debit or credit card (Visa/Mastercard) — as a result, APT views banks and credit card companies as collaborators rather than rivals. Merchants benefit because they may increase sales to customers who would otherwise be unable to afford large purchases in one go.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Nitro software operating expenses rise as their top line expands

20025825 - closeup image of businessman drawing 3d graphics

Investment Thesis

  • Total Addressable Market (TAM) for sizeable market opportunity is US$28bn (company estimates which is based on ground up model taking into account customer values). 
  • Created a solid foundation on which to build – the company has penetrated 68 percent of the Fortune 500 companies, and while the initial involvement with these companies may be small, it provides the opportunity to scale up with these customers (approx. 10 percent of the Fortunes 500 customers have 100 or more licenced users).
  • Structural tailwinds – businesses looking to digitise manual, paper-based processes are continuing to migrate online.
  • Looking to become a platform.
  • Subscription provides an appealing recurring revenue base.
  • The company’s competitive position continuously developing in R&D investment and enhance value proposition with customer.

Key Risks

  • Rising Competitive pressure especially when larger player like adobe inc and document sign.
  • Company trade on high valuation multiples like growth in subscriptions, new customers and Penetration of existing clients which disappoints the market growth.
  • Product Innovation stall and fails to resonate with customers.
  • Emergence of new competitors and technology.

Nitro software’s 1H CY21 result

  • Group revenue increased by +27 percent to $24.1 million, with subscription revenue increasing by +66 percent to $15.1 million as a result of new customer acquisition and growth among existing customers.  ARR (annual recurring revenue) of $33.8 million was up +56 percent Year on year.
  • Gross Profit was up 28 percent to US$22.1m, with Gross Profit margin of 92%.
  • R&D expenses of US$5.8m were up by 46% and represented 24% of revenue. Key Operating expenses saw significant increase as the company continuous to invest in the business to drive a top line growth.
  • Operating earnings (EBITDA excluding share-based and M&A expenses) were a loss of $3 million, compared to a gain of $0.2 million in the pcp.
  • At the end of the period, there was no debt and a cash balance of $38.6 million.

Company Profile 

Nitro Software Ltd (NTO), founded in 2005 & listed in 2019, is a global document productivity software company. NTO offers integrated PDF productivity, eSignature and business intelligence (BI) tools through a horizontal SaaS and desktop-based software suite. The Company helps customers move to 100% digital document workflows, eliminating paper and accelerating business processes.NTO serves customers around the world and counts 68% of the Fortune 500 companies among its customers. In total, NTO has over 12,000 business customers (who are defined as having at least 10 licensed users) and across 155 countries.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Whispir’s strong FY21 results seems positive for the stock

Investment Thesis

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers.   

Key Risks

We see the following key risks to our investment thesis:

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown.

FY21 key trading metrics 

  • FY21 ARR (annualized recurring revenue) was up +28.5% to $53.6m, driven by increased spending by installed customer base and addition of new customers. Recurring revenue is now at 96.7%.
  • Customer revenue retention was 115.9%, with management noting that whilst customers may initially engage for single communication solutions, once implemented with operational processes, management find that new applications / use cases across client’s organization. 
  • Over the year, WSP added 171 net new customers (up +27% YoY), bringing total customer numbers to 801. An attractive component of WSP’s solution is the Company’s “low code-no code” platform, which easily integrates with existing inhouse client IT systems and can be deployed within hours. This is one of our key competitive advantages.
  • New customer acquisition costs were down more than 50% due to higher sales efficiency and a growing proportion of digital direct sales (self-discovering the platform). 
  • LTV / CAC (ratio of lifetime value to customer acquisition costs) improved to 26.1x (from 23.7x). 
  • Gross revenue churn (3 month average) at Jun-21 was 2.4%.

Company Description  

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn).

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