MSL 0.00% 12.5¢ msl solutions limited.

Re-rate: 22c share price target (fair value) in the near-term

  1. 2,682 Posts.
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    MSL is one of the most undervalued SaaS companies on the ASX, trading at a mere ~1x ARR and with a range of upcoming catalysts. I, like @BullBear45, expect a strong finish to the year for MSL and a significant re-rate as market begins to appreciate the transformation of the business both operationally and financially.

    • Company Overview: MPower MSL provides the world's most iconic sports brands, hospitality venues, and golf clubs with leading Analytics, Membership and Point of Sale software. MSL have extremely high profile global clients across hospitality venues, golf clubs and sports brands, such as the MCG, Wembley and Liverpool FC. Moreover, the golf business is supported by the endorsement of key governing bodies such as R&A and Golf Australia
    • Management: The CEO, CFO and Chairman of this company were all appointed in their roles late last year and are very high caliber individuals, they’ve been incredibly quick to understand and turn around this business. Also, they are not spruikers, and would rather deliver first then promote. The chair, Earl Eddings, is the Chairman of Cricket Australia and Managing Director of Riskcom. He has extensive ASX experience and was the Managing Director of Greencap before selling it to Wesfarmers. @BullBear45 is familiar with the CEO, CFO and Chairman of MSL and stated "I can't rate them any higher". Earl Eddings has been increasing his sizeable MSL holding on market in recent months which is a big show of support for where the company is heading.
    • Business Model: MSL provides hosted cloud-based software solutions toclients in the sport, leisure and hospitality industries. MSL employs an openarchitecture IT platform (MPower) to combine software applications, data andmedia channels to connect a customer’s IT from the back office through tomember facing functions. The platform is structured along modular linesdepending upon the client’s needs. The open architecture nature of the productalso means that MPower can also accommodate third party software employedby the customer. MPower’s Business Intelligence product can then combinedata from the MPower platform and third party software applications to providehistorical, current and predictive views of business operations for the customer.
    • Revenue Model: MSL’s revenue is a mix of annuity subscriptions/support,licencing and installation, transactional and database media. Importantly, the company is shifting away from non-recurring revenue sources to sticky recurring revenue. The impressive increase in ARR year on year is masked by the flat/declining top line growth: FY16 ARR = $5.7M, FY17 ARR = $12.2M, FY18 ARR = $15.8M, FY19 ARR = $17.6M, FY20 ARR = $17.9M. MSL’s cash performance has been underpinned by robust recurring revenues which have remained strong throughout the second half of FY20 allowing the Company to achieve annual growth. MSL experienced only 2% churn for the Q2-FY20 quarter, which is extremely impressive in the midst of a pandemic.
    • Growth Avenues: In the latest quarterly, MSL states "New product launches and reseller agreement with Kappture position MSL to expand its global market penetration into stadium and large event venues, focusing on growth opportunities across Europe, the UK and Asia-Pacific". Moreover, in the June quarter, MSL introduced a range of innovative new products to help boost customers’ productivity as they re-open under changing health and safety regulations. These new products include in-seat ordering, click and collect, the Janus patron registration application and supportive analytics all designed to enhance the customer experience. MSL is well positioned to grow market share as stadiums re-open around the world due to the innovative nature of its products.
    • Valuation: Using an ARR multiple approach, and applying a conservative 4x FY20 ARR or 3.5x estimated FY21 ARR, I arrive at a fair value valuation of circa $72M for MSL. With 322M shares on issue and public confirmation of "no requirement to raise capital", this equates to a fair value share price target of 22 cents. There are countless comparables of similar ASX SaaS companies with equivalent or lower ARR and a higher valuation (i.e. 6-9x ARR) and thus if management continue to perform and sustainably grow MSL over FY21 and beyond, this price target will be very conservative. Even a business with flat ARR should be trading on a minimum of 2x ARR which is a 12 cent share price for MSL. This valuation triangulates with an earnings multiple method (using a forecast PEG=1).

    Lastly, from a technical analysis perspective, it looks like MSL is at a critical turning point. The company's share price has been declining in a bearish channel, but as of today, that channel has been broken. Technical indicators are turning bullish and this stock will now start to appear on the radar of many investors. We are in the early stages of the formation of a new long term bullish uptrend as the stock re-rates closer to fair value.

    This is a sleeping giant starting to stir.

    Near term 3 bagger potential.

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Mkt cap ! $41.15M
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12.5¢ 12.5¢ 12.5¢ $29.98K 239.9K

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