Team17 Group PLC

Team17 Group PLC (LON: TM17) is a FTSE AIM 100 index listed developer and publisher of educational applications.

Rationale for Valuation – SELL at GBX 765.00

• Profit Booking: TM17 has yielded over 21% return in the past month and has comfortably breached our previously recommended target price. Therefore, investors can liquidate their position with decent gains as per their risk-return profile.
• Business Uncertainty: Acute inflationary pressure and supply chain concerns can last even further with concerns related to the Omicron variant.
• Technical Indicator: From a technical standpoint, 14-day RSI (~66.70) indicates an overbought scenario, while the stock price has breached the upper Bollinger Band.
• Overvalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book are quite higher than the median of the Technology industry.

Key Risks

• UK GDP: The UK economy witnessed a disappointing GDP growth of around 0.1% during October 2021, less than the estimates of 0.4%.
• Omicron Variant: The Government-led restrictions under Plan B due to the increasing number of Covid-19 cases in the UK may adversely impact the UK Equities. Moreover, it can exacerbate supply chain difficulties.

Financial Highlights (for the six months ended 30 June 2021, as of 14 September 2021)

 (Source: Company Website)

• Operational Growth: During H1 FY21, TM17’s revenue, and gross profit grew 3% and 10% year-on-year, respectively.
• Profitability: The profit before tax and adjusted EBITDA also increased by 5% and 9% year-on-year in H1 FY21, respectively. Similarly, earnings per share surged to 8.6 pence (H1 2020: 8.5 pence).
• Liquidity: At the end of H1 FY21, net cash and cash equivalents stood around £66.6 million (H1 FY20: £50.4 million).

One Year Share Price Chart

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

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

Conclusion

As TM17 stock has given a decent rally in the past month and, it is giving an opportunity to book profit with decent gains. Meanwhile, the arrival and sustained impact of the Covid-19 with the Omicron variant can pose various challenges across the globe. Furthermore, there is a softer outlook for consumer spending amid soaring energy prices and moderating outlook for the UK economy, which can dent the overstretched position of the stock. Therefore, it is prudent to liquidate the position at the current level. The stock made a 52-week High and Low of GBX 900.00 and GBX 630.00, respectively.

Based on the decent gains, overvalued multiples, overbought technical stance, uncertain macroeconomic outlook, and unfavourable valuation done using the above method, we have given a “SELL” recommendation on Team17 Group PLC at the closing market price of GBX 765.00 (as on 17 December 2021).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

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