Treasure Chest: Appen About To Re-Rate?

This story features APPEN LIMITED. For more info SHARE ANALYSIS: APX

By Eva Brocklehurst

Software company, Appen ((APX)), which listed earlier this year on ASX, has re-stated its 2015 prospectus forecasts but also observed negotiations with Microsoft are ongoing and not likely to be completed until June. This remains the main impediment to an updated forecast, in Bell Potter's view, given the substantial amount of work done with Microsoft.

A renewal of statements of work with Microsoft for another 12 months should warrant an announcement to the market and could be the catalyst for the share price, given the risk of non-renewal is eliminated. Bell Potter also suspects a renewal would prompt an update to forecasts at the very least, or possibly an upgrade, given the work would be secured for the second half of 2015 on top of new client acquisitions and the lower exchange rate.

The chairman suggested at the AGM the shift in the Australian dollar against other currencies, particularly the US dollar, is a positive for Appen. Still, until there is some visibility on the level of revenue from Microsoft, the broker suspects the company is not in a position whereby it can update its forecasts.

Hence, Bell Potter maintains a Buy rating. While incorporating each item in terms of market movements and time creep, the broker finds there is no net change to its 85c target. At this target the total expected return, including a forecast dividend yield of 2.9%, is over 20%, which in turn supports the Buy rating.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms