LVT - Valuations, page-98

Citi have put out a new research report on LVT as below. If their prediction for the quarterly ARR growth is correct the share price should be back in the $0.40s (at least) in no time!

Looking for a record quarter
 Looking for a record quarter — After a weaker than expected 1Q (ARR growth of
$2.8 million, down -22% on 1Q19), we assume a step-up in growth in 2Q as LiveTiles
pivots towards a partner-based channel strategy. We forecast incremental ARR of
$5.8 million in 2Q, resulting in total ARR of $49 million ($53 million incl. recent CYCL
acquisition). Note that quarterly trends can be lumpy especially given LiveTiles’ focus
on selling to larger enterprise customers, however 2Q is a seasonally stronger quarter
compared to 1Q.
 Rebasing our ARR forecasts — We lower our ARR growth forecasts and now
forecast ARR of $109 million by Jun-21 (excl. CYCL), which is still ahead of
management’s target of $100 million. Our forecasts assume that LiveTiles adds $10
million in incremental ARR per quarter (on average), a material step-up from $4
million delivered over the last four quarters. The next 6 to 12 months will be key from
our perspective, as LiveTiles looks to gain traction through the Partner channel,
converts on the pipeline of Enterprise customers and increases revenue per customer
by cross-selling its various product offerings.
 3rd acquisition in ~18 months brings organic growth into focus — The $19 million
acquisition of CYCL adds ~$5 million of ARR and brings the ‘Build vs. Buy’ and
organic growth debate to the forefront. However, we have assumed that CYCL
accelerate LiveTiles’ goal of achieving $100 million in ARR. While MatchPoint,
CYCL’s core offering, overlaps with the existing LiveTiles Intranet offering, it is
expected to strengthen it in the Enterprise space, especially in Financial Services and
Government sectors. Further, CYCL’s Condense “pocket intranet” offering expands
LiveTiles’ addressable market into the mobile workforce.
 Risks to consider — i) The CYCL acquisition further increases operational
complexity and managing the combined group will be key, including retaining key
executives; ii) Any material degradation or friction in the Microsoft relationship; iii)
LiveTiles channel strategy not gaining the necessary traction or loss of key partners.
 Revisions — We lower our ARR forecasts by -4% to -15% to reflect a slower ramp
in ARR. We lower FY21e/FY22e EBITDA by -$2/-$11 million to reflect slower ARR
growth and incremental costs from CYCL. New target price is $0.63. Maintain Buy.