-Cost savings to neutralise cash burn as FY21 commences
-Cash flow could return to negative as investment is ramped up
-Resilient cloud-based subscription business model
That said, some small customers are exposed to the impact of the pandemic and any requests for assistance are being considered on a case-by-case basis.
Sales and marketing attention remains on verticals where there are strong growth opportunities. The savings initiatives include reduced executive remuneration, a -20% reduction in employee salaries for a period of six months, deferral of bonuses, and redundancies equating to around 10% of personnel.
New camera systems are also being delayed with a focus on maintaining existing systems. New sales are still likely, Citi asserts, particularly in sectors such as insurance, government and utilities. From a regional perspective, the broker assumes new business in
Macquarie expects management's decisions will provide increased confidence the business can withstand the current crisis and deliver growth as economies recover. Canaccord Genuity assesses the range of cost savings will neutralise the cash burn as FY21 commences.
Still, there is limited operating leverage for the foreseeable future and profit growth is likely to be offset by salary increases, back pay and expenditure and R&D increases, in the broker's view. While cash flow may break even in the first half of FY21, Citi concurs that this could slip back to negative in the second half as investment is ramped up ahead of a return to a normal growth trajectory.
Up-selling customers through new product features has been a driver of growth especially in
Churn
Citi expects the cash balance will reduce to
Criteria in assessing the significance of any churn consist of whether customers consider
Larger enterprises are envisaged less likely to experience churn, particularly those on multi-year deals and using premium content. The broker also expects a higher probability of churn among customers in solar, architecture, construction and engineering.
Investment View
The broker, not one of the seven monitored daily on the FNArena database, has a Buy rating and
Citi adds a High Risk to its Buy rating, expecting weak economic conditions will negatively affect growth over the next 6-12 months. The broker accepts the company's cost reductions are prudent, as there is sufficient liquidity to invest in growth when economic conditions become better.
Citi outlines three reasons to buy the stock including its market-leading profitable Australian business, a scalable business model and an under-penetrated opportunity in the US.
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