ActiveOps PLC (LON: AOM)

ActiveOps PLC (LON: AOM) is an FTSE AIM All-Share listed leading provider of Management Process Automation (MPA) software for running complex and global back-office. Moreover, the Company had operations across the USA, UK, Ireland, India, South Africa, and Australia.

On 20 October 2021, AOM will come up with the H1 FY22 trading update covering the six months ended 30 September 2021.

Technological Initiatives

The Company has several MPA products like ControliQ, WorkiQ, and OpsIndex.

(Source: Company Presentation)

Growth Prospects

• Continued Customer Expansion: The Company had secured significant logo wins during H1 FY22, adding big customers such as a large insurer and a healthcare player in the US and in the UK.
• Improved Performance of ControliQ: AOM’s largest customers i.e., three of the UK's leading high street banks, have expanded the usage of ControliQ. Moreover, the banking customer from Australia got shifted from an annual licence to a multi-year contract for ControliQ.
• First Enterprise Sale of WorkiQ: The upsell potential for the newer WorkiQ offering can be determined from the fact that the leading North American banking customer had taken an enterprise-scale licence for the Group's WorkiQ product.
• Favourable Market Dynamics: The transition to new working arrangements involving home and office working would witness increasing demand for the Company’s products such as ControliQ and WorkiQ.

Key Risks

• Covid-19 Lockdowns: The Training & Implementation (T&I) revenues witnessed a significant decline of around 38% during FY21 as Covid-19 related lockdowns delayed change programmes and implementations.
• Reduced Demand for Products: The Company has several clients who may seek products at a lower price, and it could hamper the growth trajectory.
• Lack of Relevant Technological Advancement: The Company’s top-line business and bottom-line business would be adversely impacted in case AOM lacked innovation in developing new products.
  

Now we will analyze some key fundamental and shareholders statistics of ActiveOps PLC.

Jeffery (Richard John) is the most significant shareholder as it holds nearly 9.83 million shares as of 30 September 2021. 

Financial and Operational Highlights (for twelve months ended 31 March 2021 as of 22 July 2021)

(Source: LSE Website)

• Decent Net Revenue Retention: The net revenue retention remained around 104% as of 31 March 2021, while it was 110% at the end of FY20.
• Marginal Growth in ARR: Despite the emergence of the Covid-19 pandemic, the annual recurring revenue rose by around 7% during FY21.
• Strengthening of Balance Sheet: With regards to the balance sheet, the net cash & cash equivalents significantly improved by around 305% to £16.6 million during FY21.
• Strong North American Market: Meanwhile, AOM had achieved SaaS revenue growth of around 48% in the critical North American market.

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 8 October 2021, at 10:05 AM GMT+1, AOM’s shares traded at GBX 172.00, down by around 1.71% against the previous day closing price. AOM’s 52-week High and Low were GBX 228.00 and GBX 157.00, respectively.

On a daily chart, the stock price is sustaining above the 20-days exponential moving average of GBX 170.60. Hence, there could be an uptick in the stock price in the near term. Moreover, the MACD line remained above the signal line, supporting an upside momentum in the stock price.

AOM’s stock has delivered a decent positive return of ~2.64% in the last one month. Also, it has outperformed the FTSE All-share Software & Computer Services Index with a return of negative 10.92%.

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Business Outlook

The Company had replicated the decent business performance of FY21 into Q1 FY22 as well, with considerable improvements on Q1 FY21 when Covid-19 delayed implementations and sales. Moreover, AOM had managed to generate £11.8 million profit from the sale and discontinued operations during FY21. Furthermore, the Company is keen to make accelerated progress on the investment plans with 13 existing accounts and secured two new-logo customers. Meanwhile, the Company has adequate cash to pursue more growth opportunities. In a nutshell, AOM remained confident to achieve its growth ambitions and generate long-term returns for the shareholders.

Considering the strong cash position, decent growth in Annual Recurring Revenue during FY21, significant market opportunities, increased demand for the Company’s products, and support from the valuation using the above method, we have given a “Speculative Buy” recommendation on ActiveOps PLC at the current price of GBX 172.00 (as on 08 October 2021, at 10:05 AM GMT+1), with a lower-double digit upside potential based on 6.55x EV to NTM sales (approx.) on FY22E sales (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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