Quartix Technologies PLC

Quartix Technologies PLC (LON: QTX) is an FTSE AIM All-Share listed entity that provides vehicle tracking systems and services to the fleet and insurance sectors.

Investment Highlights – SPECULATIVE BUY at GBX 385.00

• Long-term Growth Driver: The increased emergence of the Internet of Things, and smart city technologies is likely to drive the potential of the telematics market.
• Decent Outlook: QTX has grown its subscription base in new territories. Subsequently, FY21’s revenue, profit, and cash flow are expected to be in line with the market expectations.
• Technical Indicator: From a technical standpoint, the MACD line has given a bullish crossover against the signal line, supporting a positive price potential.
• Better Profitability: In H1 FY21, net margin and return on equity were higher than the industry median of 7.30% and 4.20%, respectively.

Key Risks

• New Car Sales Slump: British new car registrations reported a 29% drop in 2021 against the pre-pandemic level due to the global semiconductor shortage, which can eventually impact the Company’s business.
• Subdued Market: The concerns regarding the Omicron variant of coronavirus, British inflation worries, soaring energy prices, labour shortages, and logistical issues can dampen the investor sentiments against this penny stock.

CEO Succession Update and Trading Update (as on 22 October 2021)

(Source: Company Website)

• Subscription Growth: During 9M FY21, new subscription surged 22% year-on-year, primarily driven by 35% year-on-year growth in France.
• Strong Recurring Revenue: The annualised recurring revenue of the fleet subscription base gained by £1.5 million since the start of FY21.
• CEO Succession: Richard Lilwall commenced his appointment as CEO (Chief Executive Officer) and joined the Board of QTX.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

QTX projects FY21 financials to be in line with the market expectations on the back of strong subscription. Moreover, the economic reopening shall boost traffic on roads leading to the increase in insurance buyers and the requirement for vehicle tracking systems.

Nevertheless, subscribers should scan their risk-return profile before punting on this speculative stock amid dampened new car sales. The stock made a 52-week high and low of GBX 580.00 and GBX 330.00, respectively.

Based on the fleet revenue increase, resilience profitability, increased subscription, with support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on Quartix Technologies PLC at the current market price of GBX 385.00 (as on 6 January 2022, at 8:00 AM GMT), with lower double-digit upside potential based 53.03x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

SkinBioTherapeutics PLC

SkinBioTherapeutics PLC (LON: SBTX) is an AIM All-Share listed life science entity focused on skin health.

Investment Rationale – SPECULATIVE BUY at GBX 38.80

• Solid Progress: SBTX has transformed itself as a commercial business from merely a research and product development business in FY21.
• Growth Drivers: The launch of AxisBiotix-Ps™ and its first sales to psoriasis sufferers, holds significant growth potential. SBTX is also targeting acne as the next AxisBiotix opportunity and plans to initiate a consumer study in 2022.
• Narrowed Losses: SBTX has reduced its losses and holds better liquidity to navigate the Covid-19 related challenges.
• Technical Indicator: From a technical standpoint, 14-day RSI (~35.46) indicates an oversold signal, while the stock price has breached the lower standard deviation of the Bollinger Bands.
• Outperformance Against Index: SBTX’s stock price has yielded over ~80% of return in the past year, showing significant outperformance against the benchmark, FTSE AIM All-Share index.

Key Risks

• Liquidity Risk: The Company has not reported profit yet, and thus, can face liquidity risk. Moreover, macroeconomic instabilities can cause credit risk and delay the launch of new products.
• Pandemic Induced Disruption: The resurgence in the Omicron variant of coronavirus can limit the Company’s ability to formulate, innovate, launch, and commercialize new products.

Financial Highlights (for the year to 30 June 2021, as on 30 November 2021)

(Source: Company Website)

• Product Launch: The launch of AxisBiotix-Ps™ was launched 12-month earlier, and thus, early sales were commenced in the UK and US.
• Liquidity: The Group ended the year with a cash balance of £4.6 million (FY20: £2.2 million).
• Operational Achievement: It showed progress in Croda-SkinBiotix® programme and scaled up lysate manufacturing to commercial volumes.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

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

Conclusion

Post FY21, the Group launched the AxisBiotix product on 29 October 2021. Moreover, the Company has better liquidity following the equity placing in November 2021. The key focus for FY22 would be to build market share for AxisBiotix-Ps™, with an initial focus on the UK and US markets.

SBTX is trading as a penny stock with a history of operating losses. Therefore, investors are recommended to gauge their risk-return profile before punting on this stock. The stock made a 52-week high and low of GBX 88.00 and GBX 21.50, respectively.

Based on the successfully completed AxisBiotix-Ps™ consumer study, narrowed losses, improved cash balance, growth prospects, and favorable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on SkinBioTherapeutics PLC at the current market price of GBX 38.80 (as on 6 January 2022, at 9:20 AM GMT), with lower double-digit upside potential based on 59.48x EV/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.

*Dividend Yield may vary as per the stock price movement.

*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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