ActivePort is worth more than double current share price: research report

A recent report from Bridge Street Capital has valued ActivePort at 36c a share, more than double its current share price.

Recently listed global telecommunications software provider, ActivePort Group (ASX:ATV), is undervalued according to Sydney-based Bridge Street Capital Partners.

Bridge Street’s analyst Daniel Seeney views ATV as having a strong competitive edge within the network orchestration software space, and led by a strong and capable management.

Seeney considers ATV’s capex-light model in conjunction with its high margin, recurring revenue business model to represent a significant flywheel for shareholder returns.

Based on an enterprise value (EV) over sales valuation methodology, his assessment is that the ATV stock is currently trading at a substantial discount, and has initiated a Buy rating with a target price of 36c a share.

The ATV stock price is trading at 15c at the time of writing.

ActivePort’s global reach

According to the Bridge Street report, one of the attractions of ATV is its ability to reach global markets.

The market for cloud IT services and global networking is vast and rapidly growing, yet increasing complexity is also an emerging problem as companies struggle to deal with a convoluted array of distinct vendors and intricate software architecture.

ActivePort is addressing this problem by facilitating global connectivity and making the use of technology simple and easy. Using its unique software, customers can create network connections, deliver cloud services, and manage their data at a local, national or global scale.

“Our software provides a way to put control of technology and networks back in the hands of the customer,” CEO Karim Nejaim told Stockhead earlier.

The company’s software presents a singular, straightforward interface to smooth the transition from legacy IT systems, and enables enterprise customer adoption of cloud services.

“ActivePort is the only provider to offer whole network orchestration, SD-WAN 2.0, real-time provisioning and firewall from a single screen,” said Nejaim.

The software is currently being deployed at telecommunication operators in 16 countries, as the company positions itself to become a global leader in the network and cloud orchestration market.

Capex light with attractive margins

Bridge Street likes the fact that ATV’s business model is not capital intensive, since there is no need for it to buy linkages or capacity in data centres in order to build a global network.

This is because its network capability is built upon virtual points of presence (PoPs), making it possible to deploy networks in a very short time.

The company has also effectively removed the need to have a specific vendor lock-in hardware, and this enables customers to use its software with any hardware platform.

This in turn has allowed ActivePort to disrupt the market with superior technology at a lower price point than its competitors.

According to Bridge Street, industry margins within the software-as-a-service deployment segment typically run in excess of 70-90%.

ATV is expecting to earn margins within this range, and has indicated 75% as a base case expectation.

“We believe as the company achieves scale, the higher end of a typical industry range would be achievable,” says Seeney.

“Overlaying high margin recurring revenue streams on this capital light model is a potentially significant flywheel for shareholder returns should management execute their strategy rapidly and capably,” said Seeney.

Near-term milestones and valuation

As a small and nimble player led by a capable and experienced management team, Bridge Street believes ATV can make strong in-roads to the global market over the near-term.

In the next 12-18 months, the company’s strategic focus will be on sales and expansion, with potential for further opportunistic bolt-on acquisitions.

ActivePort’s robust first quarter sales growth has underscored the strong demand for its SD-WAN software globally. The company posted total revenue of $2.49m in Q1 FY22, up 49% on the previous corresponding period.

Bridge Street expects these revenues to increase significantly by FY23, with the managed services growing by 35% to $15.3m and software licences to grow to $11.5m.

Based on these assumptions, the research firm has ATV’s fair value at 36c a share vs the current share price of 15c.

This article was developed in collaboration with ActivePort, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.