JFrog Ltd.

FROG Details

Raised $392mn via IPO: JFrog Ltd (NASDAQ: FROG) is a liquid software company that helps developers to code high-quality applications that securely flow to end-users without interruption. As on 13 October 2020, the company’s market capitalisation stood at ~$6.53 billion. On 18^th  September 2020, the company announced the closing of its initial public offering (IPO) of 13,303,450 ordinary shares at a price to the public of $44.00 per share, raising approximately $393.1 million after deducting underwriting discounts and commissions and estimated offering expenses. The company’s stock started trading on NASDAQ on 16^th September 2020.

Launches Free Subscription to Multi-Cloud DevOps: On 13 October 2020, the company launched free subscription to its multi-cloud DevOps Platform, allowing developers to use of JFrog Articfactory, Jfrog Xray, JFrog Pipelines at no costs. Under the free subscriptions, the users will also get free access to the critical building blocks for enterprise-grade end-to-end DevOps. Notably, the Platform is available on all major public cloud providers—AWS, Microsoft Azure, and Google Cloud Platform and across 18 cloud regions.

H1FY20 Results Highlights: For the six months ended 30 June 2020, the company reported improved subscription revenue of $69.25 million, compared to $46.11 million in the previous corresponding period (pcp). For the full year, the company reported reduced loss of $426k, compared to the loss of $2.07 million in pcp. As on 30^th June 2020, the company had cash and cash equivalents (actual) of $26.46 million.

H1FY20 Results (Source: Company Reports)

Outlook: As software continues to play an important role for organisations and is a source of competitive advantage, as per IDC estimates it is expected that the opportunity for all DevOps tools will reach around $18 billion by 2024. The company is of the view that its products  can address the CSRM needs of organizations globally and estimates its current market opportunity for CSRM to be approximately $22 billion. Looking ahead, the company is focused on cultivating and leveraging channel partners to grow its market presence and drive greater sales efficiency. Further, the company is focused on extending its technology leadership and expanding within its customer base.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (illustrative)

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: On YTD basis, the stock of FROG has provided a return of 13.63%. On the technical analysis front, the stock has a support level of ~$72.36 and a resistance of ~$77.33. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with limited upside (in % terms). For the purpose, we have taken peers like Datadog Inc (NASDAQ: DDOG), MongoDB Inc (NASDAQ: MDB), Splunk Inc (NASDAQ: SPLK), etc. Although the company’s financial performance has improved, the stock has also generated decent YTD returns, and is trading close to 52-week high with limited upside, we think that the investors should wait for a better price entry point. Therefore, we have given a “Expensive” rating on the stock at the closing price of $73.62, down by 4.05% on 13th October 2020.

FROG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Selecta Biosciences Inc

SELB Details

Option and License Agreement with IGAN: Selecta Biosciences Inc (NASDAQ: SELB) is a biotechnology company that leverages its clinically validated ImmTOR™ platform to develop tolerogenic therapies. As on 13^th October 2020, the company’s market capitalisation stood at $228.2 million. On 8^th October 2020, the company announced that it has entered into a Research License and Option agreement with IGAN Biosciences, Inc. to research on its ImmTOR™ immune tolerance platform in combination with IGAN’s immunoglobulin A (IgA) protease for the treatment of IgA Nephropathy, a disease with significant unmet medical need. Both the parties intend to develop a novel combination product through a combination of IGAN’s IgA protease and Selecta’s ImmTOR platform. As per the terms of the agreement, the company is going to make an initial payment to IGAN.

June quarter Highlights: During the June 2020 quarter, the company reported slightly increased operating expense of $16.36 million, as compared to $16.24mn in pcp. Further, the company reported higher net loss of $24.1 million, as compared to the net loss of $16.39 million in pcp. As on 30 June 2020, the company had higher cash and cash equivalents of $59.73 million, as compared to $30.2 million reported in pcp.

June 2020 Quarter Results (Source: Company Reports)

What to expect: Looking ahead, the company expects its Gene therapy program to enter the clinic in 1H 2021. The company is also evaluating its SEL-212 in a pivotal phase 3 program versus placebo, with topline data expected in 2H 2022. So far, SEL-212 and pegloticase have showed favorable safety results and were well-tolerated in patients during the previous study. In June 2020, SELB and Swedish Orphan Biovitrum AB (SObi) announced a strategic licensing agreement for SEL-212, pursuant to which, the company will receive initial payments of $100 million, including $75 million upfront license fee and $25 million equity investment. Further, Sobi will fund full phase 3 clinical program and commercial costs, resulting in around $150 million in cost savings through 2023.

 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (illustrative)

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: Over the last six months, the stock of SELB has corrected by 23.9% and in the last three months it has corrected by 12.7%. The stock is currently trading lower than the average 52-weeks price level range, offering decent opportunity for accumulation.  On the technical analysis front, the stock has a support level of ~$1.49 and a resistance level of ~$3.58. We have valued the stock EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers like Horizon Therapeutics PLC (NASDAQ: HZNP), Merck & Co Inc (NYSE: MRK), and Uniqure NV (NASDAQ: QURE), etc. Considering the company’s improved liquidity position, ongoing clinical trials, expected benefits from Sobi strategic licensing agreement, current trading level and valuation, we suggest a “Speculative Buy” recommendation for the stock at the closing price of $2.13, up by 4.41% on 13 October 2020.

SELB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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