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Rapid Expansion Potential With LiveTiles

Small Caps | Jan 29 2018

This story features LIVETILES LIMITED. For more info SHARE ANALYSIS: LVT

LiveTiles has a large addressable market for its pre-configured software tiles and apps. Moelis initiates coverage on the stock.

-Products easily integrated on Microsoft's SharePoint and Azure
-Organic growth requires limited additional costs

 

By Eva Brocklehurst

LiveTiles ((LVT)) has a suite of software products that provide “plug and play” tools for businesses, using Microsoft's SharePoint and Azure platforms. Moelis initiates coverage with a Buy rating and 79c target.

The software comes pre-configured with tiles and apps that can be placed via the drag and drop function, with no coding required. This improves the visual appeal of digital work spaces and helps with user engagement and the productivity of the organisation.

The broker notes the products integrate easily and can be rapidly deployed. The free offering “Mosaic” to the educational sector provides teachers and students with an ability to design and create digital classrooms and department portals.

LiveTiles has a large addressable market and a scalable business model, offering long-term recurring revenue. Organic growth requires limited additional costs as employee numbers grow or the platform is expanded. There is also minimal support required after the initial installation. Moelis anticipates a retention ratio above 90%.

The company sells to all major industry verticals, with its geographical focus on North America, Australia and parts of Europe.

As the broker sees it, the monetisation opportunity lies with the fact that less than 25% of customer employees are paying users. Moreover, there are around 6.8m non-paying student and teacher licences of LiveTiles Mosaic. At some point in the future the company is expected to look at monetising these users.

New products released in the first half, and expected to drive revenue growth in FY19 and beyond, include LiveTiles Bots, to be promoted to Microsoft customers in the United States as a quick artificial intelligence solution. The company is currently in discussions with several Fortune 500 companies to implement this.

There is also a retail AI solution "RAISE", launched in partnership with Microsoft this month. LiveTiles Intelligence is a new product which provides analytics for how a company's digital workplace is performing.

LiveTiles uses three sales channels: direct sales, with sales teams in Australasia, North America, UK and Europe (66% of sales); partner channels, sold through resellers such as PwC and Deloitte (33% of sales); and partnership with Microsoft to co-market products to commercial customers.

What will drive this market? Moelis estimates that around 60% of organisations will be using cloud-based office systems by 2020 and employees using their own devices, particularly tablets and smart phones, continue to proliferate. Around 43% of people in the US spend at least some time working remotely according to the latest data.

In this environment software tools allow organisations to collaborate in ways which have not been available previously. This includes real-time co-authoring, a single file repository to manage workflows and file versions, as well as social media tools. The growth and evolution of computing power has also supported the rise of AI and machine learning.

LiveTiles has strong sales momentum building in the first half, the broker notes, and FY18 is expected to be a significant year for investment and new products. Break even is expected in FY21.

Moelis assumes operating expenditure will almost double in the current financial year, given the significant level of investment. Very little capital expenditure is forecast in the near term. The broker assumes the customer base grows to 1250 by FY20, from 366 in FY17.

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