New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Plexure Group<br>1H22 Result: Inflection Point Reached?</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Plexure (PX1) reported a disappointing 1H22 result, missing on both revenue and NPAT, albeit the period reported was during PX1's previous management tenure and prior to the merger of TASK Retail Limited. Positively, recurring revenue in the business increased by +13% in the period, although increased platform infrastructure costs weighed on gross margin and like all New Zealand technology companies currently, PX1 experienced a sharp increase in wage costs. We believe PX1 is a better business post its merger with TASK and note the adjusted, more localised strategy with a greater focus on profitability going forward. That said, there is significant work to do for the new management team in place as it looks to realise the potential cross-selling opportunities within its customer set (TASK brings +50 brands to the group) and return the current business to profitability again. With the stock de-rating significantly we view an EV/sales multiple of ~2.5x as undemanding given the potential self-help story at play and see any potential changes to the McDonald's contract as a clear catalyst. We retain our OUTPERFORM rating.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22 forecast revenue unchanged at NZ$45m (guidance unchanged at NZ$45m–NZ$47m)</li>
<li><strong>Target price</strong>:&nbsp;Decreased -25cps from NZ$1.02 to NZ$0.77 reflected of adjusted number of shares (371m from 331m) updated&nbsp;peer multiples and earnings changes</li>
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<h3>New strategy an uphill TASK?</h3>
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<p>During its first month at the helm the new management team consisting of CEO Daniel Houden and CFO Andre Gaylard has conducted an operational review across the business, focussing on PX1's technology, engineers and historic financial performance to identify opportunities and potential synergies between TASK and PX1.&nbsp;&nbsp;With a strategic re-set in place following the conclusion of the operational review, we note the following:</p>
<ul>
<li><strong>Strategy</strong>: The first step in the transition is likely to be focussed around rationalising PX1's resource pool with the aim of reducing its cost line. We understand staff and IT costs will be the primary focus, with the aim to bring down the number of employees and removing redundant investments in IT costs. Under the new management team PX1 will place emphasis on projects with a clear payoff profile and smaller execution risk.</li>
<li><strong>McDonald's contract negotiations</strong>:&nbsp;We view PX1's negotiation with McDonald's as key for the business going forward, given the current situation which sees PX1 absorb additional costs for additional platform usage but without any reward for uplift in revenue generated, weighing on PX1's gross margin.&nbsp;</li>
<li><strong>Synergies</strong>: The company will be&nbsp;focussing&nbsp;on driving cross-sale opportunities with a portfolio of over 50 brands across the TASK business. This is likely to lowers the cost of acquisition of additional customers and ensures existing customers are well served.&nbsp;</li>
</ul>
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Plexure Group 1H22 Result: Inflection Point Reached?

OUTPERFORM
Plexure (PX1) reported a disappointing 1H22 result, missing on both revenue and NPAT, albeit the period reported was during PX1's previous management tenure and prior to the merger of TASK Retail Limited. Positively, recurring revenue in the business increased by +13% in the period, although increased platform infrastructure costs weighed on gross margin and like all New Zealand technology companies currently, PX1 experienced a sharp increase in wage costs. We believe PX1 is a better business post its merger with TASK and note the adjusted, more localised strategy with a greater focus on profitability going forward. That said, there is significant work to do for the new management team in place as it looks to realise the potential cross-selling opportunities within its customer set (TASK brings +50 brands to the group) and return the current business to profitability again. With the stock de-rating significantly we view an EV/sales multiple of ~2.5x as undemanding given the potential self-help story at play and see any potential changes to the McDonald's contract as a clear catalyst. We retain our OUTPERFORM rating.

What's changed?&nbsp;



Earnings:&nbsp;FY22 forecast revenue unchanged at NZ$45m (guidance unchanged at NZ$45m–NZ$47m)
Target price:&nbsp;Decreased -25cps from NZ$1.02 to NZ$0.77 reflected of adjusted number of shares (371m from 331m) updated&nbsp;peer multiples and earnings changes



New strategy an uphill TASK?


During its first month at the helm the new management team consisting of CEO Daniel Houden and CFO Andre Gaylard has conducted an operational review across the business, focussing on PX1's technology, engineers and historic financial performance to identify opportunities and potential synergies between TASK and PX1.&nbsp;&nbsp;With a strategic re-set in place following the conclusion of the operational review, we note the following:

Strategy: The first step in the transition is likely to be focussed around rationalising PX1's resource pool with the aim of reducing its cost line. We understand staff and IT costs will be the primary focus, with the aim to bring down the number of employees and removing redundant investments in IT costs. Under the new management team PX1 will place emphasis on projects with a clear payoff profile and smaller execution risk.
McDonald's contract negotiations:&nbsp;We view PX1's negotiation with McDonald's as key for the business going forward, given the current situation which sees PX1 absorb additional costs for additional platform usage but without any reward for uplift in revenue generated, weighing on PX1's gross margin.&nbsp;
Synergies: The company will be&nbsp;focussing&nbsp;on driving cross-sale opportunities with a portfolio of over 50 brands across the TASK business. This is likely to lowers the cost of acquisition of additional customers and ensures existing customers are well served.&nbsp;



Plexure Group: 1H22 Result: Inflection Point Reached?