Small Caps | Nov 30 2015
This story features ACUMENTIS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: ACU
-Cyber security commands premium
-Imperative capital is raised for growth
-Revenue generating preferred
-Or on verge of commercialisation
By Eva Brocklehurst
Foster Stockbroking has signalled out some key opportunities in its quarterly review of Australian technology stocks, believing the sector has the potential to power ahead. The broker does not provide formal coverage on some of these stocks but aims to offer additional investment ideas.
Foster believes there is a strong investor appetite for IPOs (initial public offering) in the technology sector, with Jayride, VFILES, Vizalytics and KYCkr all looking to list on ASX in the next few months. While the tech sector's enterprise value/sales ratio of 3.9 has contracted over the quarter since August's 4.7 measure, the broker believes this is because markets have generally been skittish and does not actually reflect on the sector.
Moreover, the cyber security segment now commands the highest premium in terms of price/earnings and enterprise value/sales ratios at 50 and 7.2 respectively, with ongoing concerns over hacking an security breaches raising awareness.
Recent share price pullbacks in both 1-Page ((1PG)) and Reffind ((RFN)) puts the two stocks at attractive entry points, given the broker envisages no major change to their business models.
1-Page had a strong run up until October ahead of the pullback but Foster retains a Buy rating and $6.15 target, believing valuation remains attractive, given the shares are 24% below the sector average and the company is in the early stages of rolling out commercially.
Reffind has commercialised a smartphone app (application) which facilitates more efficient and effective communication between management and employees. The company has already enjoyed its first contract win, after signing a channel partner agreement with TurboRecruit, which promotes Reffind to its 7,000 users. Foster recently initiated coverage with a Buy rating and $1.70 target.
Activistic ((ACU)) is moving ahead with the roll-out of its charity apps and the signing onto its first vertical in the US, Veterans Call. The company generates revenue by charging a fee as a percentage of the money donated.
AHAlife ((AHL)) is gaining ground in e-commerce as a market place for luxury, curated consumer products and the broker expects it to set up more partnerships with high-end consumer retailers while its gifting app is expected to drive growth further.
Meanwhile, Medibio ((MEB)) is providing a solution to assessing mental health issues via its heart rate diagnostic tool. The broker anticipates high operating margins with a highly scalable data processing operation.
Norwood Systems ((NOR)) has been providing landline-quality mobile calls to international travellers, at a compelling price relative to international mobile roaming. The company’s app is enjoying extremely fast mass market additions since launch on July 31, the broker notes.
Foster has a blueprint for investing in tech companies. In addition to an attractive starting valuation it is imperative that companies seeking to list are raising capital to accelerate rather than create their business. Investors should focus on those listings where the companies are preferably generating revenue or are on the verge of commercialisation, the broker instructs. The market opportunity should also be large and an international focus is crucial.
Other stocks on the watch list include Dubber ((DUB)). The company provides subscription-based call recording, recording management and access to recorded calls from anywhere in the world. The customer proposition is compelling to the broker although the stock is not covered formally.
Covata ((CVT)) carries the broker's Speculative Buy rating and a 58c target. The company provides organisations with the tools to secure sensitive data wherever located. Foster has a high conviction on companies exposed to data security, storage and analytics. The broker expects telco reseller deals to be announced by Covata in coming quarters.
Freelancer ((FLN)) has a Buy rating and $1.93 target and the broker expects material profitability in FY18, with the company expected to reinvest revenue in hiring engineers an scientists over the next two years.
Value exists in Invigor (IVO)), Foster maintains, with a target of 11c and a Buy rating. The next catalyst is expected to be evidence of marked increase in downloads for Shopping Ninja.
Two others which the broker does not formally cover but are considered to be noteworthy are KnoSys ((KNO)), which transforms a lot of company data into usable knowledge regardless of the range of IT systems, and iSignthis ((ISX)), which provides dynamic verification of identity and financial transactions globally.
Other upcoming IPOs the broker is on the look out for are TopBetta (proposed ticker TBH) and ShareRoot (proposed ticker SRO). TopBetta is the first fully operating Australian player in the fantasy wagering and social gaming segment. ShareRoot is based in Silicon Valley in the US and has created a platform to source user generated content from social media, allowing the companies to drive sales and increase brand awareness.
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.
For more info SHARE ANALYSIS: ACU - ACUMENTIS GROUP LIMITED
For more info SHARE ANALYSIS: AHL - ADRAD HOLDINGS LIMITED
For more info SHARE ANALYSIS: DUB - DUBBER CORPORATION LIMITED
For more info SHARE ANALYSIS: FLN - FREELANCER LIMITED
For more info SHARE ANALYSIS: KNO - KNOSYS LIMITED
For more info SHARE ANALYSIS: MEB - MEDIBIO LIMITED
For more info SHARE ANALYSIS: NOR - NORWOOD SYSTEMS LIMITED