Thinksmart Ltd

Thinksmart Ltd (LON: TSL) is a FTSE AIM All-Share listed specialist digital payments platform business.

Investment Rationale – SPECULATIVE BUY at GBX 90.052

• Shareholder Return: On 10 December 2021, the Board confirmed the return of capital of 4.4618 cents per share, while the shareholders also approved the special dividend of 0.7874 cents per share.
• Profitability: In FY21, TSL’s profit after tax jumped 35% year-on-year to £71.7 million, and the Group's retained 10% shareholding in Clearpay.
• Technical Indicator: From a technical standpoint, 14-day RSI (~35.42) indicates an oversold position, while the price is trading close to the lower standard deviation of the Bollinger bands.
• Outperformance Against Index: In the past six months, TSL’s stock price has surged over 34%, showing a significant outperformance against the FTSE AIM All-Share index.

Key Risks

• Inflationary Pressure: British consumer price inflation surged to its highest in more than 10 years in November, jumping to 5.1% from October's 4.2%.
• Covid-19 Pandemic: The ongoing threat related to the Omicron variant can lead to another set of restrictions and exacerbate inflation and supply chain issues.
• Macroeconomic Risk: The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.

2021 AGM Statement and Business Update (as on 10 November 2021)

• Value Accretion: FY21 delivered significant value accretion for shareholders. Moreover, the Company's 10% shareholding in Clearpay UK helped them get the benefit of rapidly expanding consumer finance space.
• Financial Position: As on 14 October 2021, TSL reported a net cash of nearly AU$13 million.
• Dividend: During FY21, TSL delivered a special dividend and capital return of A$6.5 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (FY22) (Illustrative) 

Conclusion

The Board looked confident in the Company's fundamentals to deliver further value for shareholders, and it maintained a strong balance sheet to pursue its growth strategy. The increased adoption of 'buy now pay later' and credit cards shall further benefit the Company. Notwithstanding, TSL is trading as a penny stock with small market capitalization. Therefore, investors should gauge upon their risk-return profile before punting on this stock. The stock made a 52-week High and Low of GBX 115.00 and GBX 51.00, respectively.  

Based on the increased profitability, shareholders return, coupled with the favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Thinksmart Ltd at the current market price of GBX 90.052 (as on 15 December 2021, at 10:43 AM GMT) with lower double-digit upside potential based on 0.97x Price/NTM Book Value (approx.) on FY22E Book Value Per Share (approx.).

Gattaca PLC

Gattaca PLC (LON: GATC) is a FTSE AIM All-Share listed specialist Engineering and Technology recruitment solutions business.

Investment Rationale – SPECULATIVE BUY at GBX 112.00

• Dividend Resumption: In FY21, GATC reinstated dividend at 1.5 pence per share against the nil dividend in FY20.
• Improvement Plan: GATC has completed its improvement plan and restructured its business to focus on eight target industry sectors including Defence and Infrastructure. It expanded fulfilment function and established global technology platform.
• Technical Indicator: From a technical standpoint, the momentum oscillator RSI (~25.91) is around the oversold zone, while the stock price is hovering close to the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, and Price/Earnings) remained lower than the Industrials sector.

Key Risks

• Small Market Capitalization: It is trading as a penny stock with small market capitalization, and it is exposed to market volatilities. Moreover, the Company has a history of operating losses, and thus, it can also face liquidity issues.
• Macroeconomic Uncertainties: Weak industrial date, global shortage of semiconductors, supply constraints, tightening of monetary policy can hamper the business prospects.

Preliminary Results (for the year ended 31 July 2021, as on 4 November 2021)

 (Source: Company Website)

• Profitability: With strong cash management despite the impact of Covid-19 pandemic, GATC reported a profit before tax of £3.2 million (FY20 restated: £4.8 million).
• Robust Balance Sheet: At the end of FY21, the Group reported an adjusted net cash position of £19.9 million, while it repaid the revolving credit facility in full.

One Year Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion 

GATC is well-positioned for growth as it continues hiring within its sales and fulfilment functions. The UK sales headcount jumped 16% between January 21 and July 21. It also continued to invest in technology to manage the strong demand for STEM skills. It continued to trade in line with expectations and expects long-term growth. The stock made a 52-week High and Low of GBX 288.00 and GBX 68.00, respectively.

Based on the dividend resumption, investment in people and technology, and support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Gattaca PLC at the current price of GBX 112.00 (as on 15 December 2021, at 11:03 AM GMT), with lower double-digit upside potential based 9.30x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

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

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

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