While FY21 results and forward guidance appear rosy for
-Breakeven for
-Potential for a further capital raise
-Second half cash burn was greater than expected
-Cost growth has outpaced revenue growth for the past five years.
Longer-term shareholders in technology company
The company has around 97% recurring SaaS revenue, and modular functions which cover the entire human resources lifecycle from recruitment to payroll.
Jarden believes the FY21 result was solid and now expects breakeven for earnings to occur sooner than the market expects, with operating leverage coming through as investment as a percentage of revenue declines. This is partially offset by the higher than expected churn in the mid-market segment and larger free cash outflow than expected during the period.
However, it's this cash outflow that has some brokers less optimistic. Morgan Stanley cautions investors to be wary of a further potential capital raise and highlights management's forward guidance lacked clarity on the pathway to cash flow profitability.
While annual recurring revenue (ARR) guidance signaled re-acceleration and beat Morgan Stanley's forecast, second half cash burn missed expectations.
Meanwhile, by its forecasts,
The broker notes cost growth has outpaced revenue growth for the past five years.
FY21 results
The company experienced revenue growth of 38%, while ARR was up by 52% and underlying earnings (EBITDA) sneaked into the positive at
The customer retention rate fell to 84.2% from 90.2% in the previous corresponding period, which was lower than Jarden expected, due to covid-impacted customers. However, management expects this to be temporary in nature.
FY21 results versus expectations
Revenue was in-line with the guidance range of
ARR was also in-line with the guidance range of
Meanwhile, underlying earnings (EBITDA) of
The broker highlights key cash movements included -
The cash burn and churn issues
Morgan Stanley estimates the company should have circa
The company is considered to be still deep in the investment phase, with a wide range of possible outcomes.
The market has focused on the short-term spike in mid-market ARR churn rate to 11.6% from 7.8% in FY20 and 9.3% in the first half of FY21. Jarden feels this discounts an emerging operating leverage and considers it actually points to an improvement in the free cash flow outlook over the mid-term.
Performance of acquired businesses
Webexpenses, the global business expense management platform that was acquired in December, 2020, grew by around 20% over FY21 versus the 30% historical run-rate and total cash costs were higher than Shaw's forecast.
Another
FY22 outlook
Pleasingly for Shaw, FY22 guidance implies acceleration in organic growth and a slower rate of cost growth versus FY21. However, FY22 implied total cash costs look likely to be slightly higher than the broker's prior forecast.
The broker's FY22 revenue forecasts have increased by 3-13% though total estimated operating expenses increase by -8-17%, including total cash costs estimates, which have increased by -7-15%. As a result, FY22 forecasts are for ARR of
The broker, not one of the seven stockbrokers monitored daily on the FNArena database, maintains its Buy rating and its
On the other hand Jarden sees a better-than-expected FY22 outlook at both the revenue and earnings level and notes management's revenue guidance is just slightly ahead of the broker's estimate and consensus of
FY22 earnings guidance of
The outlook, generally speaking
Jarden sees the company as well-positioned for market share expansion in a structurally growing industry, driven by rising operating efficiency requirements and demand for digital workforce management as organisations shift towards greater remote work arrangements.
As mentioned previously, cost growth has outpaced revenue growth for the past five years. With cash operating margins of -55% in FY21,
If sales efficiency does not improve, and/or the company is required to invest substantially more into key modules and acquisition integration than the broker currently expects, then cost growth may be higher than forecast. Improving operating margins are considered a likely re-rating event for the stock.
The company is covered by only Morgan Stanley, from a potential seven stockbrokers that are monitored daily by FNArena. The broker maintains its Overweight rating and lowers its target price to
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