Buy Ansarada Group On Weakness, Suggest Brokers

Small Caps | Sep 12 2022

This story features ANSARADA GROUP LIMITED. For more info SHARE ANALYSIS: AND

Brokers remain upbeat on the outlook for Ansarada Group following FY22 results, despite a softer near-term outlook.

-FY22 revenue for Ansarada Group grew by 44%
-Management expects a slower start to FY23 trading
-Morgans and Canaccord Genuity suggest buying shares on weakness
-Recent and future strategies to lift revenue

By Mark Woodruff

Since late 2020, shares of Ansarada Group ((AND)) have remained around the $1.60 level after plumbing $1.00 lows in 2021 and reaching $2.65 in February this year.

The company is a SaaS platform with products used by companies, advisors and governments to govern their information and processes in deals and transaction management, board management, compliance and tenders.

In short, Ansarada enables organisations to be run efficiently with reduced risk and enhances decision-making capabilities. The group is best known for its cloud-based artificial intelligence-powered-data rooms, where its is the dominant platform for deals including M&A and capital raisings.

FY22 results released on August 31 were in line with Morgans forecasts. However, management pointed to a slower start to FY23 trading and now expects negative free cash flow in the first half, before returning to positive in the second half.

The broker still expects revenue growth over FY23 and believes any share price weakness is a buying opportunity and has raised its 12-month target price to $1.90 from $1.85.

Revenue in FY22 grew by 44% to $48.3m, gross profit increased by 42% to $45.8m, while adjusted earnings of $6m exceed the $5.9m of the previous corresponding period.

Management explained FY22 was a period of customer investment with the aim to make it fast, easy and risk free to try the company’s solution set. While the number of paying subscribers increased by 11% year-on-year, once "freemium" offers were taken into account, total customers increased by 31%.

The largest driver of earnings for Ansarada are deals/M&A, explains Add-rated Morgans, and management noted the first half of FY23 will be impacted by lower deal volumes, while M&A and IPOs are also expected to decline.

However, the company anticipates other areas will compensate, including more late series raisings (as IPOs get delayed), as well as an increase in distressed debt, equity raisings and insolvencies.

On top of this, management expects growth will arise from less economically sensitive areas such as Tenders (large infrastructure projects) Board papers, Governance Risk and Compliance (GRC) and the new ESG offering.

Moelis reduced its rating to Hold from Buy for Ansarada and lowered its target to $1.82 from $1.92 on the slowdown in M&A activity, though still managed upbeat commentary on the outlook.

The broker cited recent Tender wins with Transport NSW, Energy Co NSW and the Victorian Government Solicitors Office and forecasts more wins with domestic State and Federal governments. The capital-light, e-commerce led strategy in overseas markets (primarily the UK) is also expected to grow market share.   

Recent and future strategies

Management introduced a price segmentation strategy in FY22 in which pricing packages are based on contract duration, features enabled and data usage.

This change resulted in a blended 29% increase for average revenue per user (APRU) and offset any weakness in transactional volumes from M&A, explains Buy-rated Canaccord Genuity.

The broker also noted ongoing heavy R&D expenditure largely focused on periphery products, with the aim of diversifying revenue into new product lines. This area (non-Deals) is expected to produce a material proportion of future revenue, up from around 15% currently.

Canaccord also noted the usage of the freemium model to attract paying subscribers. While this approach is unique to the industry, US-listed software company Atlassian and the messaging program Slack (owned by US-listed Salesforce) have had success with the model, as has the graphic design platform owned by Australian private company Canva.

Outlook

Despite lowering its target price to $2.50 from $3.00 on earnings revisions following FY22 results, Canaccord expects deal volume to lift and conversion rates from freemium to paying subscribers to improve.

While revenue growth slows over the next six months, Canaccord is of a similar mind to Morgans in suggesting investors take advantage of any share price weakness and accumulate shares.

Any lull in M&A activity is not a structural shift, stresses the analyst, and doesn’t change Ansarada Group’s market leadership position.

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