Overview
Tungsten Corp PLC (TUNG) is a London, United Kingdom-headquartered leading global supply chain enabler which founded the Tungsten Network’s electronic invoicing network in 2000 to help in accelerating global trade for customers. Tungsten Network seeks to improve business outcomes for the networked firms and is a compliant business transaction network which is backed by intelligent use of data. These include access to disruptive supply chain finance through Tungsten Network Early Payment, real-time spend information through Tungsten Network Analytics, electronic invoicing for connected supply chains through Tungsten Network and much more. The product of the company enables suppliers to submit tax compliant e-invoices in 48 countries and processes invoices for 74% of the FTSE 100 and 71% of the Fortune 500. The company has three operating segments, namely Tungsten Network, Tungsten Network Finance and Corporate.

Recent Development
The company on 3 July 2019 announced that Andrew Lemonofides would join the company as its new Chief Executive Officer, taking over David Williams who will revert to his role as Chief Financial Officer. Mr Lemonofides will join the group in September 2019 and is currently the Chief Strategy and Transformation Officer at IWG plc.

Financial Highlights (FY 2019, in £m)
 
(Source: Company Filings)

Results have been presented excluding Tungsten Network Finance as well to aid future comparability as the company announced its intention to divest Tungsten Network Finance on 30 April 2019. Reflecting existing customer price increases, additional product sales to current customers and net benefits of new customer sales, revenue (including TNF) in FY 2019 increased by 6.8% to £36.0 million (FY18: £33.7 million). Representing growth of 6.3%, revenue excluding the results of Tungsten Network Finance grew to £35.4 million (FY18: £33.3 million). As the take up of new products were lower than expected, and the company underperformed in onboarding and signing new buyer and supplier customers, growth was slower than both expectation and FY 2018 performance. Out of the total revenue, 92% was represented by recurring and repeatable revenue, against 90% in FY 2018. Due to the continued detailed focus on the cost base, the group was successful in reducing adjusted operating expenses by 6.9% to £33.5 million (FY18: £36 million), which led to the group returning an EBITDA profit of £0.6 million (FY18: £4.6 million loss). Excluding Tungsten Network Finance, EBITDA was recorded at £2.5 million (FY18: (£3.3) million loss). Operating loss for the year was £5.2 million (FY18: £12.1 million loss). Gross cash at the end of FY19 was £3.8 million, while net cash was £2.8 million at the end of FY19, as the company successfully generated cash flows of £1.9 million in the second half of the year.

Valuation Methodology
Method:  EV/SalesApproach (NTM)
 


Share Price Commentary

Daily Chart as at July-23-2019, before the market closed (Source: Thomson Reuters)
 
On 23 July 2019, at the time of writing (before the market closed, GMT 10:05 am), TUNG shares were trading at GBX 53.3, up by 2.50 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 62.00/GBX 19.95. The company's stock beta was 0.16, reflecting significantly less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £65.70 million.

Conclusion
The company targets a 100% increase in new sales billings from the £4 million achieved in FY19 and through the continuation of recurring and repeatable revenue, it expects revenue growth (excluding TNF) to accelerate from 6.3% in FY19. Through revenue growth and continued cost discipline, it plans to achieve low double-digit EBITDA margin. The company expects to become the invoice delivery platform of choice for current and new Suppliers on its global Network through the launch of its Total AR solution, which would offer both non-network Buyers and Suppliers the ability to enhance their services. The company has also embarked on the divestment of non-core business, which will allow it to focus on its core propositions and grow its invoicing business.

Based on the decent prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 52.00 (as on 22 July 2019) based on 1.86x NTM EV/Sales(approx.) on FY20E Sales(approx.).

*The speculative buy recommendation is valid for the current price as covered in the report (as on July-23-19)
*All forecasted figures and peers have been taken from Thomson Reuters.

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