Elixirr International Plc - Operating in a challenging environment

Elixirr International Plc (LON: ELIX) is an AIM-listed business management consultancy Company. It serves clients in around 25 countries, including Europe, Africa, North America, and Australasia. Elixirr was founded in 2009. The Company guides its clients to overcome challenges such as: development and roll-out of new propositions, products and services; future-proofing against technological disruption; navigating a more complex and multinational regulatory environment; project management and implementation of major change programmes and incubating new businesses.

Rationale for Valuation – Expensive at GBX 300.00

• The Company is trading near a 52-week high, and Price/Earnings, EV/EBITDA and Price/Cash Flow multiples are significantly higher as compared to corresponding multiples of the Professional & Commercial Services industry, reflecting overstretched valuations.
• The operating landscape remains highly volatile with the continuing uncertainty due to Covid-19 pandemic.
• From the technical standpoint, 14-day RSI stood at ~59, which means the stock price could decline in the short term.

Key Risks

• The novel COVID-19 pandemic has impacted the global economy, causing massive disruptions in the global supply chain.
• Delays in restoring services following a major disruption could result in a loss of customers and reputational damage.

Recent News

On 29 October 2020, the Company announced that it had acquired the entire issued share capital of Coast Digital Limited (digital marketing firm), for a consideration of around £3.8 million plus an additional cash payment.

Trading Update (as on 19 October 2020)

• In September 2020, the Company witnessed growth and another record revenue month, following prior record revenue months in June 2020 and July 2020.
• For FY20, the Company is expected the adjusted EBITDA to be in excess of £9.25 million on an IFRS 16 basis.
• While, on an IAS 17 basis, the adjusted EBITDA for FY20 is expected to be in excess of £8.75 million against a market expectation of £7.8 million.
• Overall, Trading since 30 June 2020 has continued to be strong, with a cash balance of £16.8 million at 30 September 2020 and no debt.

Three Months Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite the face of the Covid-19 pandemic, the Company since the period ended 30 June 2020 has traded well with revenues and margins proving resilient. It has shown record revenue month in September, July and June 2020. For FY20, the Board expects the revenue to be strong and operating margins to be greater than H2 FY19. Meanwhile, it has also delivered a strong financial performance in H1 FY20, with good visibility over current work-in-progress and pipeline opportunities. However, the business is more exposed to the economic uncertainties arising from the Covid-19 pandemic. In the future, the Company may face emerging headwinds and cost pressures. Presently, the Group is trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 185.00 and GBX 332.00, respectively.

Based on the factors as highlighted above, we believe the stock of Elixirr International is “Expensive” at the closing price of GBX 300.00 (as on 22 December 2020), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

Versarien Plc

Versarien Plc (LON: VRS) is involved in offering engineering solutions. The operations of the Company are differentiated in three core operating segments.

The Company will release H1 FY2021 results before 31 January 2020.

Investment Highlights - Versarien Plc – Avoid at GBX 37.73

• The Company need to manage operating expenses more effectively unless it will lead to increased loss in near future.
• As per valuation metrics, Price/Cash Flow multiple of the Versarien Plc is currently higher as compared to the corresponding multiples of the Speciality Chemicals industry, reflecting overstretched valuations.
• In the last six months, the Company delivered a negative return of ~13.23% and delivered lower returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, shares were trading below the short-term support level of 200-day (GBX 42.23) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Group is exposed to political and economic uncertainties such as Brexit and Covid-19 outbreak, which has a detrimental effect on business performance.
• The Company’s long-term growth prospect could be impacted negatively if the Board fails to implement strategies effectively or develop a wrong strategy.

Recent News

On 22 December 2020, Versarien announced the agreement to acquire assets related to graphene production from Hanwha Aerospace Co Ltd based in South Korea for consideration of 11,000,000 shares of 1 pence/share. The consideration is at the 39.475 pence/share and is equivalent to £4.34 million.

The Company also entered into a subscription agreement to subscribe for 8,750,000 new shares at 40 pence with Lanstead Capital Investors LP to raise £3.50 million of gross proceeds.

Financial Highlights – FY2020 (31 March 2020) (released on 11 August 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, due to lower revenue from all businesses for the period, the revenue declined to £8,281 thousand.
• The Profitability margins for the period declined, reflecting higher operating expenses incurred.
• The cash balance as on 31 March 2020 declined to £1.7 million, while net assets stood at 15.7 million (FY2019: £13.3 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Both the revenue and the bottom-line performance has declined with profitability margins remained in the negative zone. The revenue from core businesses has declined for the period. VRS’s cash balance declined, while balance sheet remained well positioned. The Company’s performance was impacted by the covid-19, and it has started to experiencing recovery at a slower pace. With the launch of the new product, expansion to new markets overseas and Gnanomat products final testing, the Group expects technology businesses future looks exciting. The stock made a 52-week low and high of GBX 21.20 and GBX 95.00, respectively.

Based on the above rationale, we have given an “Avoid” recommendation for Versarien Plc at the closing price of GBX 37.73 (as on 22 December 2020), while we look for any upcoming catalysts in the near term such as benefits of acquisition of assets related to graphene production.

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

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