Treasure Chest: Significant Upside All On 1-Page

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By Eva Brocklehurst

A high growth technology company with strong potential in its home territory, the US, has recently listed on ASX. After recently visiting the company’s HQ in San Francisco, Canaccord Genuity believes the growth options for 1-Page ((1PG)) are substantial, in keeping with the scale of the US market in human resources (HR) recruitment.

A ramp-up in revenue is considered imminent and the broker kicks off coverage with a Speculative Buy rating and $6.37 target. This target represents 187% upside to the current share price and is based on a blended valuation. Upside risk to the valuation could come as the company converts stage two contracts, particularly if these contracts are converted on more favourable metrics against the broker’s base case.

It appears US enterprises have been quite receptive to the company’s products, with 125 paying clients expected by end of 2015 and up to 30 potentially converted into stage 2 contracts this year. The contracts vary in size depending on the employee base. Cash flow is recognised on a monthly pro rata basis.

The broker forecasts revenue to rise to $76.4m in 2016 from $6.7m in 2015. Such growth is predicated on the scalability of the contracts. For example, a sourcing customer with 250,000 staff and 30% staff turnover per annum could grow to US$5.3m in revenue (7.0% share of hiring) over subsequent years from just US$1.5m revenue (2.0% of hiring) in its stage 2 contract.

Significant re-investment in growth initiatives is expected next year but the business is still expected to generate positive free cash flow. Canaccord Genuity does envisage a requirement for additional capital to be raised in the short term.

The company acquired BranchOut in November 2014, a professional networking services with 820m profiles launched in 2010 within the Facebook platform. This formed the basis of a proprietary database that now has over 1.1bn affiliations. The company offers a HR sourcing service, based on this asset which is considered beneficial to HR managers.

The database allows 1-Page to pull out a set of candidates that are affiliated with the customer’s employee base. Services to customers include sourcing suitable candidates for jobs, assessing the suitability of candidates for specific jobs and engaging existing staff internally. 1-Page acquired BranchOut last year for US$2.0m and 7.5m shares.

Data from the company suggests that gainfully employed candidates are far less likely to respond to an approach from either recruiters or job listings than to people they know socially. Canaccord Genuity suggests this is a major advantage. 1-Page also uses another publicly available data to cross-reference the people in the database including LinkedIn and Twitter as well as industry-specific platforms

1-Page is based in San Francisco and has substantial experience in US high growth tech companies. The company seeks to monetise its customers immediately, charging a small flee to trial the product and looking to turn that customer into a fully negotiated enterprise contract within 3-5 months.

In a highly fragmented market such as recruitment, the broker believes the company’s platform offers a unique service which could capture a meaningful market share over the longer term. The acceptance of the services from some US Fortune 500 companies signals the potential for value adding.

1-Page is not a typical ASX tech stock. For a start, its target continues to be the US market. In this case the fall in the Australian dollar exchange rate will have positive impact on translated revenue and earnings reported to ASX.

The decision to list on ASX is a strategy to avoid potential dilution or restrictions associated with US venture capital investments on offer. The listing also helps the company meet enterprise contract procurement requirements of its major customers, which often cannot deal with start-up companies without access to public capital.

Canaccord Genuity considers the nearest comparable on ASX to be Xero ((XRO)), which has a high growth, scalable business model and a similar revenue trajectory. 1-Page will present at the broker’s annual conference in the US this month.
 

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