BUY HOLD SELL – Nuix (ASX: NXL)Nuix (ASX: NXL) was the biggest float of 2020 and soared more than 50% on its first day. Investment banks couldn’t get enough of it and many missed out on their desired allocation. Some speculated that it was a function of the improving macro picture combined with a lack of desirable floats in 2020 that drove the heightened interest. So, what is it doing now? On Monday, it was announced NXL would be added to the ASX 200 as part of the March quarterly rebalance. Not always a good thing as Henry reminded me, more people looking under the hood can sometimes be detrimental. That said, the index inclusion does typically lead to short term strength as “passive” funds, like ETFs, or any index matching fund, have to sell the stocks that drop out of their benchmark index and buy the stocks that get included. That may have helped NXL rise ~4% on Monday but the stock is still down more than 35% since its half-year results. The market wasn’t pleased as they appeared to miss prospectus expectations. Joint underwriter Morgan Stanley believed the price reaction was too severe, adding that the disappointing result now lifts the risk profile of its full-year earnings. To rebuff those comments, CEO Rod Vawdrey said its sales pipeline remained strong and US government deals would bounce back in the June quarter. Vawdrey was quoted saying, “the fourth quarter is always the strongest”.
- Topline revenue was down 4%, at $85.3m, while annual contract value (ACV) for the 12 months ending 31 December was up only 3%, to $162m. The majority of NXL’s revenue comes out of the US, with currency headwinds named as a reason for the revenue setback
- Management reaffirmed guidance saying they expected to hit full-year ACV of $200m and pro forma earnings (EBITDA) of $63.6m
- Floated at $1.7bn, market cap now at $1.85bn.
- ROE of 7.3% isn’t that juicy but it’s expected to lift to 15.1% in FY3. Its peer in FLC sits on -6.9%.
- No EPS or revenue forecasts for the coming financial year. EPS growth is anticipated to outpace revenue growth in FY2 and FY3.
- A PE of 97x is rather modest for a growth company, meaning it actually has earnings, unlike many of the other high flying tech stocks in the market. As HUM (the old FXL) found out, that isn’t always good for the share price.
- One broker with a BUY recommendation.
- NXL is trading at a 45.9% discount to the broker’s target price and a 77% discount to intrinsic value.