Here is what the
now revealedfacts suggest: a) 30% of Appen's revenue is now committed (i.e. recurring). b) The
New Markets division (AKA Appen's training
data products) comprises 20% of the business (and rising). c) This AI product-led section of the business is at an FY20 run rate of $85M USD and growing at 34% YoY.
If the
'new markets' division (Appen's training data products) of Appen was spun out and listed on the NASDAQ, I would guess it would be
valued at $1 billion USD or more, alone, on a circa 10x PSR. Scale AI (a similar sized business to APX's new markets division and similar in tech capability) suggests that it could go for a lot more than that (Scale is valued at $7 billion USD!). This is the tech-enabled component of APX, where the majority of the future growth of the business will stem from.
The
global division of APX is also a valuable division of the company,
producing consistent mid to high single-digit profitable growth. This part of Appen is producing all of the profit currently (the new markets division has been cash-flow negative but is now at breakeven as of H2CY2020). I'd conservatively value the global division component of APX (i.e. the global tech giants relevance work) at a
10x EBITDA multiple for a value of around [($42m USD H1 + $46m USD H2) x 10 EBITDA multiple] $880m USD =
$1.135 billion AUD.
Adding the two components together, using this
sum of the parts methodology, I arrive at a current fair valuation of Appen of
circa $2.425 billion AUD ($1.29 billion AUD + $1.135 billion AUD). With 123 million shares on issue, this equates to a
currentfair value share price of circa $20 per share. If you are comfortable forecasting out one year into the future and assume that the global division grows at mid-single-digit figures and that the new markets division grows in line with the AI industry average, one arrives at a price target at least $4 higher than that (i.e. $24+).
You are absolutely correct that a
high volume day (such as that we experienced) is highly likely to have been
driven by institutional purchases. My own analysis for a 12-24 month view falls somewhere between Citi & Ord Minnett. I believe that achieving a share price in the $25 to $31 range within that timeframe is very achievable.
Lastly, let me say this. If Mark Brayan's understated style (measured, calm and trustyworthy) (whom I support FYI) leads to an upgrade over the next 12 months, then a return to $30+ is well and truly in sight. I'd much rather have a CEO like Mark at the helm, who has a history of under-promising and over-delivering, than a brash and bold CEO who will claim anything to move the share price higher in the short term at the expense of trust, longer term.
As a part-owner of this business, I am not a trader and
I am investing capital here for consistent profitable growth in future cash flows. In the short run,
sentiment and
storytelling are all-knowing. But, in the long run, cash flows are the only thing that truly matters for the share price.
T.E.P.
(20min delay)