Whispir Limited

Company Overview: Whispir Limited (ASX: WSP) is a worldwide scalable SaaS company founded in 2001. The company is engaged in offering a communications workflow platform that automates communications between organisations and people. The company operates across three key regions of ANZ, Asia and North America.

WSP Details

Expanding Customer Base and Capital Raising Program Aid WSP: Whispir Limited (ASX: WSP) is a global scale software-as-a-service (SaaS) company, which provides a communications workflow platform that automates interactions between businesses and people. As on 5 March 2021, the market capitalisation of the company stood at ~$368.14 million. Recently, the company successfully completed a Placement of A$45.3 million to new and existing institutional investors at a bid price of A$3.75 per share. The Placement proceeds enable WSP to accelerate its growth strategy, which includes product roadmap, enhancing value of new and existing customer in ANZ and Asia along with increased investment in North American market expansion. Further, the company has also announced a Share Purchase Plan (SPP) to raise up to A$3.0 million through the issue of fully paid ordinary shares at an issue price of A$3.75 per share. Capital raising is a good way to strengthen the company’s balance sheet to provide working capital flexibility.

Coming to the company’s 1HFY21 performance, it has provided a robust result with ARR, revenues and customer numbers growing firmly on a year over year basis. The results were primarily driven by existing customers, with annualised recurring revenue (ARR) amounting to $47.4 million and half-yearly revenue amounting to $23.1 million. The company also remains on track to record a year over year increase of ~30.2% in revenues from Australia and New Zealand (ANZ) operations. This region is also witnessing robust growth in new customers as companies seek platforms that can be executed quickly to digitise their business communications. The company witnessed an addition of 77 new customers in 1HFY21, thanks to the global requirement for WSP’s easy-to-use communications workflow software across industries and regions. These new customers provide future growth opportunities for the company.

Looking forward, the company is likely to benefit from the accelerated digital transformation, thus retaining a substantial long-term growth opportunity. The company is making higher investments to accelerate roadmap embedding prediction, recognition and automation to boost engagement and message value, incorporate diversity in language detection tools, along with increasing the efficiency of message content in international markets, including South East Asia and Latin America. In addition, the company’s extensive product offering is likely to provide more prospects to secure customers across key regions. In 1HFY21, the company has a total of 707 customers, up 38.9% year over year.

ARR Contribution from New Customers (Source: Company Reports)

1HFY21 Key Financial Highlights: During the period, WSP outperformed its 1HFY21 prospected forecast and reported a growth of 27.3% in revenue to $23.1 million, backed by a 34.1% increase in transactional revenue. Gross profit during the period came in at $14 million, up 24.5% year over year. Revenues from software came in at $22.3 million in 1HFY21, up 28.3% year over year. Professional services revenue for the period increased 4.5% year over year. ARR in 1HFY21 increased a whopping 29.2% year over year, primarily driven by increased activity from existing customers. Total operating expenses in 1HFY21 came in at $15.8 million, depicting a decline of 1.1% over the PCP. EBITDA for the period came in at -$1.8 million, owing to optimum cost management structure.

Coming to the geographical performance, the company’s ANZ business continued to perform very well, with revenues rising 30.2% from the prior corresponding period. Revenues from the Asian region also continued to grow by 24.4% year over year in 1HFY21. The company remains focused to enhance its platform usage from its install base in this region. Further, the company’s North American go-to-market strategy has also delivered new customers gain, targeting the underserved SME and SMB markets. During the period, research and development expenditure totalled $4.6 million in 1H FY21, demonstrating ~20% of total revenues. The company remains on track to invest higher in order to deliver its five-year product roadmap.

1HFY21 Key Highlights (Source: Company Reports)

Healthy Balance Sheet and Decent Liquidity: The company has built a decent balance sheet position with total assets reaching $34.04 million as at 31 December 2020. WSP has cash and cash equivalents of $10.87 million. Total debt at the end of the period amounted to ~3.1 million. Capital raising is likely to help the company to achieve its goal and organic growth initiatives. The company’s healthy balance sheet and skilled management team along with its long-term nature of customer relationships places WSP for considerable long-term growth. For 1HFY21, the company reported an EBITDA margin of 1.6%, higher than the year-ago figure of -25.3%. In 1HFY21, the company’s cash cycle days stood negative at 138.1.

Growth and Profitability Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 49.81% of the total shareholdings, while the Top 4 constitutes the maximum holding. Wells (Jeromy) is the entity, holding maximum shares in the company at 11.57%. Pie Funds Management Limited is the second-largest shareholder, with a holding of 6.45%, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Risk Analysis: Stiff competition in the markets where WSP operates, COVID-19 led disruptions, and regulatory concerns may dampen financial performance. Further, foreign currency fluctuation risks and government restrictions add to the woes. The company is exposed to credit risk, liquidity risk and market risk arising from financial assets and liabilities. Also, the company’s revenues are heavily dependent on retaining its key customers. This implies that customer concentration risk is higher for the company. Further, the company’s financial performance can be battered by increasing headcounts and personnel costs. This, in turn, may weigh on margin expansion, going forward. Also, rising expenses add to the woes.

Outlook: WSP remains well-positioned with a robust long-term sales pipeline. Strategic partnerships are expected to provide strong momentum to acquire new customers in the North American region, going forward. Further, significant opportunities to attract new customers across key markets and increased technology spend amongst existing customers remain key catalysts. The company’s business has proven to be resilient to the impacts of COVID-19, owing to strong record levels of cash receipts and enhanced market opportunity for its SaaS solution. Going forward, the company expects positive results to continue in 2HFY21. The company has revised its outlook for FY21 in an upward direction. WSP now expects its FY21 ARR to be in the range of $53.5 million and $55.3 million, up from the previous range of $51.1 million and $55.3 million. Further, the company now expects FY21 revenue to be between $49 million and $51 million.

FY21 Outlook (Source: Company Reports) 

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~5.6% and went down by 3.5% in the past one month. The stock made a 52-week low and high of $0.68 and $5.24, respectively. On the technical analysis front, the stock has a support level of ~$3.184 and a resistance level of ~$4.152. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). We believe that the company might trade at a slight premium to its peer average, considering its strong 1HFY21, decent top-line performance, high customer retention rates, focus on delivering organic growth, decent cash position and encouraging outlook. We have taken peers like Nearmap Ltd (ASX: NEA), Nitro Software Ltd (ASX: NTO), to name a few. Considering the above factors, robust customer base, capital raising program, decent 1HFY21 financial performance, increasing gross profit, and positive long-term outlook, we give a “Buy” recommendation on the stock at the current market price of $3.390, down by 3.967% on 5 March 2021.  

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

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