The ASX biggest IPO of 2020 is back under its IPO price. So is Nuix a buy or bust?
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It looks like forensic data company Nuix (ASX:NXL) has fallen out of favour with investors recently, with its share price now falling below the IPO price.
The share price went into a tailspin after disappointing results were announced on 26 February, in which the company missed its prospectus forecast. It’s been plummeting by over 40 per cent since, to trade at $5.17 lately.
Nuix made its blockbuster debut on the ASX back on 4 December 2020, at an IPO price of $5.31. It jumped moments after floating, and by close of day, had surged 50% to $8.01.
Investors kept pouring on the stock over the following month, and by the end of January, the stock price was at $11.86, its all time high.
So what went wrong with Nuix?
Not much fundamentally, according to investment adviser, Adam Dawes of Shaw & Partners, who spoke with Stockhead about Nuix’s recent downward moves.
“Nuix is a good business, but like any growth stock, the market will punish them as soon as expectations are missed,” Dawes said, while acknowledging that they would have to do better in the second half to regain investors’ confidence.
Back in December, Nuix’s IPO was billed as the biggest of 2020. The company entered the market after raising around $1.7 billion. Macquarie (ASX:MQG) was and is still Nuix’s biggest shareholder, even after cashing out its 66 per cent stake to 30 per cent when the shares floated.
Nuix itself was founded in 2000 by the still incumbent chief scientist, David Sitsky. By mid-2000s the business had begun to scale rapidly, signing up big law enforcement clients like the Australian Federal Police, ASIC, and the US Securities and Exchange Commission.
At its core, the company says its complex algorithm was designed to process and make sense of lots of unstructured data from various sources like emails, videos, and increasingly, social media. The company offers this data forensics service, called the Nuix Engine, to more than 1,000 customers globally, with the self-proclaimed vision to “find the truth from any data in the world”.
The pitch made to potential IPO investors was around this very vision, pointing to the fact that the software has been used in high-profile cases like the Panama Papers, as well as the Royal Banking Commission investigations back home.
Given the fanfare surrounding the IPO, Nuix disappointed investors after results came in below forecast.
The company reported half year statutory revenue of $85.3 million, which was 40 per cent of its full year FY21 prospectus forecast of $193.5 million. EBITDA came in at $31.6 million, which was 50 per cent below its full year forecasts.
It’s worth noting however, that annual contract value (ACV) grew by 3 per cent to $162 million. Dawes believes that ACV is the all-important figure in a software business like Nuix, as it removes “fluctuations from the total revenue” figures. The ACV is used by SaaS companies to assess contracts on an annualised, straight line basis, removing multi-year contracts from the total revenue number.
Investors also had some reprieve, when in March, it was revealed the company was to be included as part of the S&P ASX 200 Index. According to Dawes, this is a positive development and bodes well for the company, as it allows fund managers with strict mandates to now buy Nuix shares as part of their portfolio.
As the share price kept falling, Nuix tried to calm investors, and on March 8, released a statement reaffirming its full year FY21 IPO forecasts.
It said the order book was strong, and both revenues and ACV were in line with management’s expectations.
It noted that Nuix’s contract completions are typically weighted towards the end of the financial half years, and more than 30% of that half’s revenue was signed in December 2020. In other words, the company believes the pipeline for the second half will be solid.
Nuix believes that 2021 will see a substantial increase in US government spend being released, after it was delayed due to the elections and COVID-19. US government agencies are Nuix’s biggest customers.
So, with the current share price trading at half its peak, is it a good time to jump on Nuix?
“I’d be cautious, and wait until it gets above the IPO price,” says Dawes.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.