Eckoh PLC (LON: ECK)

Eckoh PLC is an FTSE AIM-All Share Index listed company engaged in providing multi-channel, integration, and Payment Card Industry Data Security Standard (PCI DSS) payment solutions for contact centres. It has two segments, namely, Eckoh UK and Eckoh US. The Company also offers agent-assisted and self-service automation across voice, mobile and Web channels, giving options to choose how and when users want to make purchases or get in touch with their providers.

On 1 September 2021, ECK would conduct its Annual General Meeting.

Recent trend of dividend payments

(Source: LSE website)

The chart above demonstrates the consistent dividend payment done by ECK from FY17 to FY21.

After cancelling the final dividend in FY20, the Company paid a special dividend of GBX 0.61 per share in October 2020.

The Directors recommended a final dividend for FY21 of GBX 0.61 pence per ordinary share, to be paid on 22 October 2021. The ex-dividend date will be 23 September 2021.

New Product Update:

The key initiative for FY21 was delivering ‘stack solutions’ incorporating Amazon Connect, Eckoh services (Omnichannel, Secure Payments and advanced voice self-service) and Coral.

The CallGuard product was also updated with a more flexible delivery method and a tailored product for SMB customers.

Growth Prospects

• High market opportunity: The contact centre industry in both the US and the UK is vast, representing around 4% of the entire workforce. The Company's primary targets are the organizations with more than 50 agent seats, representing over 2,510 in the UK and 12,050 in the US. The low market penetration, limited competition and patented technology represent a massive opportunity for Eckoh in the years ahead.
• Unique product offering: The Company provides unique products to its clients, such as secure payment products and customer contact solutions. Secure payment products help organizations to reduce the risk of fraud, secure sensitive data, comply with the payment regulations. At the same time, the customer contact solution provides ways to its clients to engage their customer base.
• Cloud opportunity: Eckoh continues its Cloud-Native journey focusing on both transition and net-new products and services. In FY21, the Cloud-based US contracts saw a significant change, with 80% contracts won compared to 20% in FY20. In addition, the management plans to increase investments in cloud opportunities to extend global reach by implementing new platforms and develop a multi-Cloud offering.

Key Risks

• Poor product performance: If the Company fails to deliver satisfactory client services or solution design, it could lead to reputational loss of Eckoh Group.
• Regulatory and compliance risk: The Group's operations require it to comply with specific standards, including Payment Card Industry Data Security Standard (PCI DSS) and broader security regulations such as the General Data Protection Regulation (GDPR) or the US Consumer Privacy Acts. Failure to comply with such regulations and standards could significantly impact the Group's reputation and expose the Group to fines and penalties.
• Data security: Any fraudulent activity, cyber-crime, or security breaches in connection with maintaining data and delivering products and services could harm reputation, business, and operating results.

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

Financial and Operational Highlights (for twelve months ending 31 March 2021 as of 15 June 2021)

(Source: LSE website)

• The ECK reported good growth in US Secure Payments with revenue growth of 57%. New secure payment contacts exceeded FY20 figure of USD 10.70 million and reached USD 11.60 million at the end of FY21. It was driven by a record number of contracts won.
• The UK total business reported decent renewals, including TfL, Tenpin, Yodel, 1st Central, Welsh Water and Ministry of Justice.
• Driven by US Secure Payments revenue growth, the Group's profit before tax increased by 6% to £3.5 million.
• The UK partner share increased by more than 10%, with BT and Olive deals going live and US partners increased marginally by 1%.

(Source: Company Presentation) 

Financial Ratios (H2 FY2021)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 31 August 2021, at 10:04 AM GMT, ECK’s shares traded at ~GBX 58.72, down by 0.48% against the previous day closing price. Stock 52-week High and Low were GBX 83.00 and GBX 55.25, respectively.

On a daily chart, the share price is sustaining above 20-day SMA of about GBX 58.31, indicating the possibility of an upward movement. The 14- RSI indicator suggests trend reversal from the oversold territory. Hence, there could be an uptick in the stock price in the near term.

Valuation Methodology: EV/Sales based Approach (FY22) (Illustrative)

Business Outlook Scenario

ECK delivered a decent performance in FY21, with revenue growth of 57% in US Secure Payments. The Company has a lower debt/equity ratio than the industry median of 0.39x and a higher current ratio than the industry median of 1.26x in H2FY21, reflecting financial strength. The Company benefited from the Cloud shift amid Covid-19, and it is likely to become the revenue driver for the coming years. The Company's business model provides unique products and services to its customers, and low market penetration and limited competition provide a good opportunity for growth in the future. The management remains positive post-pandemic with double-digit revenue and profit growth set to return in FY23.

Considering the Company’s business model, chances of increasing market penetration, solid financials, investment in cloud technology, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Eckoh PLC at the current price of ~GBX 58.72 (as on 31 August 2021 at 10:04 AM GMT), with lower-double digit upside potential based on 5.62x EV/Sales (approx.) on FY22E sales (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. The recommended target is above the Resistance level 2 and if Eckoh PLC attains momentum or breach it, then target price as per valuation table could be seen in the near term as per technical chart analysis.

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

*The dividend yield is subject to change as per the stock price movement.

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

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