Dev Clever Holdings PLC

Dev Clever Holdings PLC (LON: DEV) is a UK-based software development company focused on integrating cloud-based VR and gamification technologies across education and commercial sectors.

Investment Rationale for Valuation – SELL at GBX 37.95

• All major profitability metrics like EBITDA margin, operating margin and the net margin remained in the negative territory during H1 FY21, while the respective industry median was in positive territory.
• The stock price surged by approximately 13% in the previous two trading sessions, providing a decent opportunity to book profit at the current levels.
• From a technical standpoint, DEV is trading above the upper Bollinger band, indicating a correction in the stock price.
• Moreover, the 14-days RSI of ~64.55 is approaching overbought territory, indicating a correction in the stock price.

Key Risks

• Any rise in interest rates could make it difficult for the DEV to raise debt funding and develop new products.
• Failure to deliver tests & assessments and other related contractual requirements because of operational headwinds might result in the reputational damage of DEV.
• The prolonged closure of schools and test centres can cause liquidity risk.

Recent Developments

On 2 September 2021, DEV signed a definitive document regarding the partnership with Aldebaron DMCC, under which the Company would generate minimum guaranteed revenues of USD 50 million over the next four years.

H1 FY21 Financial Highlights (for the period ended 30 April 2021, as on 05 July 2021)

 (Source: Company result)

• During H1 FY21, DEV accelerated progress in the global EdTech space and shown 531% year-on-year growth in revenue.
• Despite the revenue growth in H1 FY21, the Company reported an EBITDA loss and adjusted loss after tax of negative £162,000 and negative £92,000 respectively.
• DEV had successfully raised £15.0 million of net proceeds from fundraising activity completed during the period.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

The new partnership with TILG and Aldebaron would strengthen the Company’s proposition to enter new markets and swiftly expand the user base. Moreover, the Ed-Tech industry would continue to grow as there would be a potential of around USD 11.50 trillion to be added to the global GDP by 2028. However, the Company had been consistently reporting net loss for the last few years. Thus, the recent contract win caused a surge in the stock price, giving a good opportunity to exit on this loss-making company. The stock made a 52-week low and high of GBX 6.00 and GBX 47.90, respectively. 

Based on the weak profitability and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Dev Clever Holdings PLC at the current market price of GBX 37.95 (as on 22 September 2021 at 08:55 AM GMT+1), while we will suggest reinvesting once the Company starts reporting profitability.

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

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

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