Ords reckons this ASX stock has more than 40% upside

Straker Translations is deeply undervalued and “well placed for strong growth” according to Ord Minnett.

In a note titled “Well placed in a wild market”, leading stock broker Ord Minnett has rated language translation tech company Straker Translations (ASX:STG) as a buy, with a price target more than 40% higher than the current share price of $1.11.

The NZ-based, ASX-listed company uses artificial intelligence powered software to provide online language translation services, with Its RAY Translation Platform in use by more than 10,000 clients, including a strategic partnership with IBM, in more than 20 countries.

Stellar FY22 results

Straker recently reported an almost 80% increase in revenue for FY22 to $55.9 million, well ahead of guidance of $50 million for the period.

The company is also expecting revenue growth of 20% in FY23, with a positive adjusted EBITDA.

Off the back of these results, Ord Minnett upgraded its FY23 and 24 revenue forecasts by 18% and 20% respectively while its EBITDA forecast increased 16% and 64% respectively.

Ords noted the result which was the result of “strong organic growth” and said it believed the company was well placed for strong growth.

SaaS growth

Ords also highlighted Straker’s acquisition of Lingotek which it said broadened the company’s revenue base into the SaaS space. In FY22, it recorded 11% growth in revenue on its proforma prior corresponding period, driven by new customer wins and contract renewals.

Ords noted that Lingotek’s gross margins are higher than Straker’s and provided a boost during the first half of 2022. It reiterated that Straker believed that SaaS revenue will eventually comprise 15-20% of overall revenue and will materially contribute to revenue growth for Straker.

Growth opportunities

Straker also acquired Belgium-based IDEST Communication SA in January – a company serving clients like the United Nations and European Commission for more than two decades.

Ords highlighted the “substantial beachhead” the acquisition provided Straker within the European NGO space and that IDEST generated around $5.95 million in revenue over the 12 months prior to the acquisition.

Ords said it believed once IDEST customers are migrated to Straker’s RAY platform overall margins will increase and the combination of those customers with Straker’s global language capabilities will provide significant opportunities for growth.

IBM blockbuster

Earlier this month, Straker said that translation volumes from its IBM strategic partnership continue to grow in line with expectations and new partnership opportunities are developing.

Ords noted that the agreement initially covered around 55 languages for IBM but has now expanded to 77 and said it believed the company can replicate the success of the partnership with their other global enterprise customers.

This article was developed in collaboration with Straker Translations, 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.