Why IHR is a buy.

Some interesting research I found on reddit today, haven't checked its validity but it seems quite comprehensive. The thread is here https://old.reddit.com/r/ASX_Bets/comments/jfolik/dd_on_ihr/

"Haven’t written a DD post in a while since VR1 was at $0.08, as there hasn’t been anything that has caught my interest aside fromIHR (IntelliHR)recently.

Now, some of you might know IHR, since Bevan Slattery joined as a cornerstone investor in August at around $0.075 (3DP was his other pick). Here is their 2020 investor presentation

Now, diving into the product and services that IHR provides. Generally most companies use a HR system to manage their employees. Likewise, IntelliHR provides a similar product, but their niche is that they can support large enterprises while also maintaining a very competitive price. This does cut into their margins, but opens them up to a range of smaller-mid tier businesses who have accelerating growth but limited funding. Here is a demo of their product offering. They have been growing rapidly and internationally too, with great reviews from clients.

There’s been some limited coverage on IntelliHR and the cloud-HRM industry, and why Bevan invested, but I want to provide my take on it. I’ve been following the NASDAQ:Workday stock quite intently (Workday is very similar to IntelliHR in that they provide a cloud-based HR solution), and they have shown quite significant increases over the past few months and I’ve been curious why. Pouring through their investor transcripts, it has become a lot more clearer. The cloud-based HR market is growing very rapidly simply because organisations can’t afford to use their legacy on-premise systems anymore in a WFH environment. They just can’t keep up and it’s adapt or die. IntelliHR’s affordability and freemium product allows it to capitalise on this transition, and that's shown in their new customers.

This stock is held quite tightly, with institutions and management holding roughly 45% of the stock. But the current data is outdated because it doesn’t factor in the August capital raise, so I’d imagine it’s closer to 50-55%+ now. Colinton capital owns around 15-20%.

Now, fundamentally, they are performing reasonably well, but I don’t think the current public data shows everything, so I’ve filled in some areas with my thoughts. Here was their most recent quarter (Q42020).

Market Cap: 65M.

Quarterly Revenue: 479k (54.5% QoQ Increase)

ARR: $1.95M (12.3% QoQ Increase)

Cash: 3.1M + 5.5M + 650k = 9.25M.

**3.1M was the cash on hand at their FY2020 Report. 5.5M was the cash raised through their August CR, and 650k is roughly the amount received for an incentivised tax refund in September.

Quarterly Loss: 640k (51.5% Reduction from Q4-19)

Overall, I don’t see much downside to the stock at its current MC, they have more than enough funding for many more quarters, accelerating revenues and they have very strong customer retention, with the previous quarter losing no customers and a 16% increase from existing ones.

The beauty of this type of integral software is that once a company has been onboarded, it is extremely difficult for them to migrate from one cloud-based HR system to another, thus ARR growth is almost inevitable."