Straker undervalued post IBM deal say analysts

Special Report: Analysts have highlighted the value in translation software company Straker Translations (ASX:STG) following its partnership with IBM.

Analysts at brokers Bell Potter and EL&C Baillieu have upped their target price on Straker Translations (ASX:STG) following the translation software company’s increased partnership with computing giant IBM.

Straker announced the two year agreement with the tech behemoth last week which will see it appointed as a Strategic Translation Service Provider for IBM.

The share price soared more than 75 per cent on the news boosting it to $1.50 Bells and Baillieu are both targeting a price above $2.

Despite limited disclosure around what revenue uplift the agreement will provide, analysts at both brokers are predicting it will be ‘very significant’.

Baillieu has pointed to Straker’s plan to increase headcount by 30% to service the IBM agreement as it broadens its language services from one (Spanish) to 55 (including major languages French, Chinese, Portugese and Japanese) as signs the partnership will have a major impact on Straker’s revenue.

It’s tipping a revenue rise of NZ$14m per annum by the time the partnership is fully rolled out in 2023.

Bell Potter is offering a similar prediction, calling the deal ‘overwhelmingly positive’ and upgrading EPS forecasts by 89% in 2022 and 55% in 2023.

And Bells and Baillieu aren’t alone with Cranport Investment Fund head and Straker shareholder Stuart Foster calling the IBM deal a step change for the business.

“It validates Straker’s technology and, whilst it is too early to ascertain the impact to the company’s revenue profile, it clearly has the potential to be material, “ he said.

“The company appears to be nearing the critical cash flow break even point, which is another key catalyst for the stock.”

Straker’s core technology is an AI-based software platform that translates written documents into other languages. IBM has been using the platform since 2018 and was already one of Straker’s biggest clients. Ten of the new languages IBM is adopting are expected to see the same investment as its initial commitment to Spanish translation.

IBM will run Straker’s proprietary RAY platform across a number of its verticals, including the Adaptive Translations Services department and its global media division.

Both EL&C Baillieu and Bell Potter maintained positive outlooks for Straker following the announcement, predicting ongoing M&A opportunities for the business and significant long term growth, provided none of its competitors are able to increase their competitive positions.