Absolute Software Corporation

Absolute Software Corporation (TSX: ABST) is engaged in the development, marketing, and provision of a cloud-based endpoint visibility and control platform. Geographically, the group generates majority of revenue from the United States and Canada.  

Key Highlights:

• Remarkable Year over Year Revenue Growth: The company has registered substantial revenue growth from past several quarters. This is mainly attributed to expansion in new growth market and synergistic product’s launch in high growth market. Additionally, the varied product portfolio is another compelling factor for this consistent revenue surge.  

               Source: Company Presentation

• Elevated growth within the Endpoint security services: The company has reported consistent growth in its Annual Recurring Revenue (ARR), which denotes stable income generation, and is a key positive. The company is a leader within the endpoint security service segment, while a growing need for the above services has resulted in impressive growth in ARR in the recent few years. We expect the momentum to continue due to the growing adoption of cloud and managed service subscriptions from existing and newly acquired customers.

Source: Company Presentation

• Completion of Acquisition & increase in partners: On July 1, 2021, the company has closed the acquisition deal of NetMotion Software Inc. of worth USD 340 million cash, out of which USD 275 million was funded by Benefit Street Partners LLC. During Q4 FY 2021, ABST Elite partners grew 13% while Premier Partners increased 8%.
• Soaring cash from operations: At the end of FY21, the company reported a solid growth in its cash flow from operations, which increased to USD 46.836 million, as compared to USD 24.955 million in the previous corresponding period (pcp), supported by improved working capital management. The surging CFO considering the present turmoil situation is a healthy sign for the company’s business.
• Updated Guidance: The company has provided full year guidance for FY 22, where adjusted revenue expected to be in the range of USD 203-207 million, while YoY revenue growth anticipated in the range of 11 to 13%. Moreover, adjusted EBITDA margin forecast in the range of 18 to 20%.

 FY21 Financial Highlights:

• ABST announced its yearly result, wherein the company posted its revenue of USD 120.784 million, higher than USD 104.671 million in the previous corresponding period (pcp). The increase was driven by a strong performance from Cloud Services and Managed Professional services segment partly offset by other services revenue.
• Gross Profit surged to USD 104.915 million, from USD 91.581 million in FY20, supported by higher revenue, partially offset by an increase in the cost of revenue.
• The group reported a surge in operating expenses due to increased sales and marketing costs, R&D and higher general and administration costs. Due to above reasons, the Operating income stood lower at USD 5.629 million than USD 15.266 million in pcp.
• The company reported a lower net income of USD 3.920 million than USD 10.635 million in pcp due to increased expenses.

FY21 Income Statement highlights (Source: Company Report)

Risks: The company reported a surge in input costs and the other operating expenses, continuation of the above trend is likely to impact the company’s margin, profitability and cash flows.

Stock Recommendations:

For FY21, the company reported a 15% y-o-y growth in revenue at USD 120.8 million while the total ARR increased by 14% YoY at USD 123.4 million, which is a key positive. Moreover, the Adjusted EBITDA in FY 2021 was USD 31.9 million compared to USD 27.4 million in FY 2020.  Additionally, the recent acquisition of NetMotion Software, Inc. is likely to enhance the company’s offerings and client base. On the valuation front, the stock is available at an EV to Sales multiples of 2.15x on an NTM basis, as compared to the industry (Technology) median of 4.3x. Hence, considering the above facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 14.47 on Sep 22, 2021.

One-Year Technical Price Chart (as on September 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

Sierra Metals Inc

Sierra Metals Inc (TSX: SMT) is a precious and base metals producer in Latin America. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold in Mexico and Peru.

Key Highlights:

• Robust Cash flow generation: The company reported a strong cash flow of USD 46.527 million in H1FY21, which was significantly higher than USD 14.680 million in pcp. The increase was driven by a net profit of USD 14.839 million in H1FY21, as compared to a loss of USD 1.447 million in pcp.
• Revival in operations: During the first half of FY21, the company reported higher production of silver, zinc and lead, which has supported the company’s overall operations. Moreover, daily throughput stood 25% higher at 8,925 for H1FY21. Revenue in H1FY21 came at USD 149.073 million, as compared to USD 97.459 million in pcp.
• Drilling updates: During the second quarter of FY21, the company reported the following drilling activities:

1. The group conducted 11,377 meters of drilling in the Bolivar West, Bolivar NorthWest, La Montura and the Cieneguita zones encountering skarn intersections with mineralization.
2. In the Triada copper porphyry, SMT reported 1,033 meters of surface exploration drilling which resulted to total of 1,479 meters for the year.
3. Last but not the least, the group completed 6,518 meters of infill drilling to support the development of the Santa Rosa de Lima vein and NE Trend.              

Q2FY21 Financial Highlights:

• SMT declared its quarterly result, wherein the group posted revenue of USD 79.449 million, jumped from USD 41.901 million in the previous corresponding period (pcp). Higher revenue was primarily driven by a strong performance from silver and zinc segments. The company reported a 62% and 25% increase in throughput from its Yauricocha and Bolivar mines, respectively.
• Gross profit stood at USD 33.175 million, soared from USD 11.696 million in Q2FY20. The growth was supported by higher sales, partially offset by higher mining costs (USD 35.549 million v/s USD 21.643 million in pcp), and higher depletion, depreciation and amortization (USD 10.725 million v/s USD 8.562 million in Q2FY20).
• The period was marked by an increase in general and administrative expense (USD 5.187 million v/s USD 4.588 million in pcp) and selling expenses (USD 2.858 million v/s USD 1.979 million in Q2FY20), while a lower interest expense and other finance costs (USD 0.863 million v/s USD 0.954 million in Q2FY20) supported the profitability.
• The group reported its net income of USD 11.079 million, significantly higher than USD 0.301 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The income of the company is dependent on the commodity prices. Hence, volatility in pricece would lead affect the overall performance of the company.                                                             

Stock Recommendation:

For FY21, the company expects its Copper equivalent production in between 110 to 115 million pounds, while silver production is estimated in between 13 to 14 million equivalent ounces. The company expects its EBITDA in between USD 130 million and USD 140 million, while total capital expenditure is estimated at around USD 100 million. On the valuation front, the stock is available at an EV to Sales multiple of 0.6x on an NTM basis, as compared to the industry (Metals & Mining) median of 1.8x. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 2.51 on September 22, 2021.

One-Year Technical Price Chart (as on September 22, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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