Foster just release its report with recommendation BUY on BTH.
Investment Highlights:
• BTH reported improved progress in 1QFY18a, with cash receipts for the quarter showing a marked improvement on the June quarter. BTH reported $4.8M operating cash receipts, vs $1.5M in June quarter, which was affected by receipts timing. The September quarter included licence prepayments and expected revenue seasonality (quantum undisclosed).
• Strong improvement in cost control compared with the June quarter, particularly at the advertising and marketing, and administrative costs lines; advertising spend was $0.69M for the September quarter, down from $0.87M in the June quarter, while administration costs were $0.45M, down from $0.56M.
• Cash positive for the quarter with net operating cash flow of $0.65M, a positive signal and a healthy turnaround on the cash burn of $2.9M in Q4FY17. We keenly anticipate another quarter of positive cash flow, which would position BTH to achieve its positive cash flow milestone by CY17e end.
• Well funded to continue expanding, BTH has cash of $11.6M at quarter end, with nil debt.
• The company continued to expand into existing customers including ADP and Becton Dickinson, and won a number of new customers (including Abiomed, ABMD.NSDQ mkt cap US$7.6B and Cyrolife, CRY.NYSE mkt cap US$670M) in a number of different industries including life sciences, financial services, and telecommunications. Abiomed and Cryolife represent new land and expand opportunities for BTH. Contract values and licence numbers were not disclosed. This is in addition to the previously disclosed large US telco contract win, in August 2017, and a number of smaller customers through the quarter.
• The US sales team has been built out to include Chicago with additional resources put on to tackle the US mid-west market, and highlights the opportunity and demand for BTH’s enterprise mobility software.
• BTH remain confident of exceeding key IPO forecast metrics for CY2017, including a monthly recurring revenue target of $1.077M by CY17e end and CY17 (US GAAP) revenue of $11.7M.
Valuation and Earnings:
• Our valuation of $0.29/share remains unchanged as we already factor strong sales growth of 40% and 34% over the next two years. The large US contract win, continued client wins, and execution of land and expand strategy suggests the company is on track to achieve this strong sales growth objective.
• We have a blended valuation of $0.29/share, based on an equally weighted EV/Sales multiple and DCF blend. Our EV/Sales valuation is $0.25/share, based on a conservative 3x multiple of FY18e sales of $12.9M. Our DCF valuation is $0.33/share using a DCF methodology (WACC 15%) and assuming BTH experiences revenue growth at 40% and 34% over the next two years.
Recommendation:
• We maintain our Buy recommendation and 12-month price target of $0.29/share.
• Catalysts for the share price include: 1) increased client numbers, 2) increased seat numbers within existing clients (‘land and expand’); 3) new seat numbers from new clients; 4) cash flow and profit breakeven in CY17 and CY18, respectively.
(Sources from Foster Stockbroking)
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