Oxford Metrics Plc

Oxford Metrics Plc (LON: OMG) is an FTSE AIM All-Share listed Company which is involved in the development and sale of computer software to government, entertainment, life sciences, and engineering markets.

The Company will release Preliminary Results on 3 December 2020.

Investment Highlights - Oxford Metrics Plc – Speculative Buy at GBX 74.15

• The Company has strong fundamentals and encouraging pipeline of opportunities across divisions.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings and Price/Book Value multiples of the Oxford Metrics Plc is currently lower as compared to the corresponding multiple of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY15 – FY19), the Company’s operating profit surged from GBP 1.35 million in FY2015 to GBP 4.66 million in FY2019. Compounded annual growth rate (CAGR) stood at ~ 36.31%.
• From the technical standpoint, 14-day RSI is in oversold zone and is supporting an upside move (around 33 level), which means the stock price could increase in the short term.

Key Risks

• The supply chain disruption amid Covid-19 pandemic can increase the operating cost.
• As the Company operates in multiple geographies, global macro-economic conditions and exchange rate fluctuations could also impact the business performance.

Trading Update for FY2020 (30 September 2020) (released on 3 November 2020)

• The Company expects revenue and adjusted PBT to be £30.3 million and £2.5 million for FY2020.
• Oxford Metrics has a strong cash position of £14.9 million, with no debt.
• The Company’s timing of orders for Vicon business was impacted due to covid-19 crisis, while remained profitable with better performance in H2 FY2020.
• During the lockdown period, the market activity for Yotta business remained muted, while witnessed improved contract momentum in Q4 FY2020.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company’s performance was impacted by the impact of the covid-19 crisis, as it led to the delay in timing of orders and muted the market activity. With the easing in lockdown, the Company witnessed an improvement in trading activity, and its Vicon business remained profitable for the period. OMG has strong fundamentals and strong balance sheet, with an encouraging pipeline of opportunities, to navigate through current challenges. The stock made a 52-week low and high of GBX 70.00 and GBX 127.40, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Oxford Metrics Plc at the current price of GBX 74.15 (as on 9 November 2020, before the market close at 9:55 AM GMT), with lower double-digit upside potential based on 15.42x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Tungsten Corp Plc

Tungsten Corp Plc (LON: TUNG) is a London, United Kingdom Company, which is engaged in e-invoicing, purchase order services, and financing business.

Investment Highlights - Tungsten Corp Plc – Speculative Buy at GBX 27.64

• Despite the uncertainty, the Company is expecting to meet external forecasts for FY2021, based on new sales performance and current pipeline visibility.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Earnings multiples of the Tungsten Corp Plc is currently lower as compared to the corresponding multiple of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY16 – FY20), the Company’s revenue surged from GBP 26.08 million in FY2016 to GBP 36.81 million in FY2019. Compounded annual growth rate (CAGR) stood at ~ 9%.
• From the technical standpoint, 14-day RSI is in oversold zone and is supporting an upside move (around 30 level), which means the stock price could increase in the short term.

Key Risks

• Failure to win or retain customers could affect the revenue and profitability of the Company.
• The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Recent News

On 20 October 2020, Tungsten Corporation announced the selection of Andrew Coulsen, as director non-executive effective immediately.

Financial & Operational Highlights – FY2020 (30 April 2020) (released on 7 September 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, the revenue surged by 2%, and recurring and repeatable revenue stood at 94%.
• The profitability for the period declined, reflecting higher operating and non-operating expenses, while the adjusted EBITDA margin increased to 7% in FY2020.
• The Company has a positive cash generation for FY2020, with gross cash of £5.2 million and net cash of £3.2 million.
• The Company, in partnership with Orbian, launched new chain financing and winded down TNF portfolio successfully.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The financial performance in FY2020 declined while profitability margins remained in the negative zone. Meanwhile, FY2020 was a year of transformation for the Company, with an increase in revenue and adjusted EBITDA. Despite the challenging external environment, the Company’s trading performance in Q1 FY2021 has been robust, with expected sales improvements. Moreover, Tungsten expects to deliver growth in the financial year 2021. The Company has secured further new customer wins and a strategic partnership agreement to expand the product offering. Overall, TUNG is well-positioned to take advantage of the expected recovery post-Covid-19 situation. The stock made a 52-week low and high of GBX 19 and GBX 49.52, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Tungsten Corp Plc at the current price of GBX 27.64 (as on 9 November 2020, before the market close at 9:24 AM GMT), with lower double-digit upside potential based on 0.93x EV/NTM Sales (approx.) on FY21E sales (approx.).

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

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

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