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Product Review Img Vertical

Date : 01/03/2021

IntelliHR Limited

ASX :

IHR

Market Cap : $120.79 Million

Buy

52 Week Range : $0.025 - $0.590

Share Price : $0.38

Operating in a high growth market, IHR has been performing very well. Expansion is underway and it has reported a record half year. We recommend members to "Watch".

Company Analysis

IntelliHR (ASX: IHR) is a cloud-based enterprise software company for human resource (HR) and people management. It is headquartered in Brisbane and they operate with a SaaS revenue model. Their product delivers a full HR digitization – taking a company from paper-based HR records to an HR automated process for:

  • HR process automation
  • People compliance management
  • Performance management tools
  • Feedback employee wellness tools
  • People data visualisation analytics
  • Realtime people sentiment and insights

The real-time data enables companies (IHR’s customers) to make data driven decisions. IntelliHR is now using machine learning and artificial intelligence to improve the business intelligence capabilities of their dashboard. This is also their unique selling point (USP). IHR prides themselves for the data visualisation and analytics that they provide and also for the real time people sentiment and insights that their AI is capable of.


Source: IHR

Currently, IHR sits in Phase 3 after having established product-market fit and reaching their $2 million annual recurring revenue target even during the pandemic. As work-from-home is becoming the new norm, people management has become very challenging for organisations. IntelliHR’s business intelligence tools have thus become very popular all over the world. At a very early stage, over 40% of their subscribers are located overseas. India, China, North America, South America, Europe, and Africa. IHR already has a footprint in all of these locations and 16 countries in total. This global footprint is extremely important for the growth of the firm since markets such as China, India, and North America are very start-up rich. A start-up rich market enables the use of new technologies and more often than not, leads to integrations with other software.

IntelliHR actively pursues integrations with other apps. In addition to the usual sales channels, these integrations are a major channel for new customer leads and acquisitions. Xero, Zapier, Keypay, Lever, GO1.com, Job Adder, etc are the major partnerships that IHR has established in FY2020.

The subscription revenue model has 3 tiers: Employee engagement at $6 a month, Performance enablement at $10 a month, and Strategic HR at $16 a month. These prices are per user basis, and hence, IHR gains quite a few subscribers when they sign up an entire organisation as one of their customers. The relatively low cost also positions them very attractively to smaller organisations such as start-ups and SMBs.

Company Updates


Source: Tradingview.com

The company and the stock price have been one of the benefactors of the pandemic. To touch on the stock price performance, IHR has returned 313% in the past 1 year, 86% in the past 6 months, and 106% in the past 3 months. IHR has also outperformed the ASX 200 benchmark index (orange line) and the sector index – S&P ASX All Technology (blue line).

IntelliHR is not profitable as of yet. Their last equity raise was back in August 2020 for a total of $5.5 million consisting of $2.5 million placement and a $3 million rights issue. The issue price was $0.075 a share – a 3% premium at that time. The funds were raised via the Slattery Family Trust – Australian serial tech entrepreneur Bevan Slattery. The funds raised are used for the global expansion acceleration and continued investment in R&D. IntelliHR received around $650,000 in 2020 as a part of R&D tax incentive refund and an Export Market Development Grant of $626,444 and $38,370, respectively. These inflows strengthened the cash position of IHR, taking it to around $12.5 million during Q1 of FY2020.

In the first half of FY2021, IHR acquired a record 43 new paying customers. The total contracted customers as of December grew to 151 – 60% higher than the second half of FY2020. This increase drove a 288% increase in average subscribers for every new customer to 340. The total contracted subscribers are 29,170 as at the end of H1 FY2021. The invoiced subscribers increased by 12,954 or 133% over the previous corresponding period.


Source: IHR

In order to continue its linear growth trajectory, IHR is known to be adding language support for French Canadian, French, and Spanish – opening new geographical markets for the firm. Going forward, IHR will be looking to:

  • Accelerate international expansion, specifically in Americas and UK as the economy starts to recover.
  • Partner with complementing technology vendors for integration led expansion.
  • Continue to invest in R&D in order to improve the product and service.

Industry Analysis

HR and people management has always been a cornerstone to any company’s success. With the pandemic inducing work-from-home, it has become even more important to better manage human resources. This is a high-growth space that is technologically challenged. Most companies in the world, including the biggest, still use legacy systems that are not user friendly to manage their human resource department. IntelliHR says over 80% of their sales prospects do not have any existing technology in place except for a payroll system.

Manual HR processes use excel for their reporting and analytical capabilities are time consuming and require a lot of human interactions and effort. IntelliHR is changing this.


Source: IHR

The above picture compares IntelliHR with its competitors. Our survey of the top companies in the world illustrates that workday and Oracle are the most used platform for HR management. Of all the enterprise SaaS companies that are operating in the HR management space, IntelliHR offers one of the best in class features and functions. The relatively low pricing also makes them a very attractive prospect.

IT advancements and the use of machine learning, and artificial intelligence has revitalised the global HR management market. The entire industry is valued over US$ 16 billion and it is growing at a CAGR of 11% through to 2027. The need or rather adoption for digital global workplaces are driving the growth in this sector and increasing the need for enterprise software to measure and improve productivity.

Investment Thesis

IntelliHR reported record annual recurring revenue in Q2 of FY2021. They generated $522,000 – a 23% increase and 24% increase in invoiced revenue quarter on quarter. The subscriber growth during this time was 47% quarter-on-quarter and 147% higher year-on-year. This growth came in mainly from North America and UK market expansion. IHR reported that 7 customer Q2 contracts were converted during the period including a major American cornerstone customer. APAC growth was steady during the time and IHR continued to add in more New Zealand enterprise customers.

The half year earnings report showed a very strong performance by IHR throughout the pandemic. There were increases in revenue, ARR, cashflows, cash position, customer numbers and subscriber conversions. The international expansion strategy is working well for IHR and they now operate in 18 countries.


Source: IHR

  • Annual recurring revenue grew by $0.919 million to $2.874 million during the half year. This represents a 47% increased over H2 FY2020 and 82% increase over the previous corresponding period.
  • Total expenses increased by $1.47 million – an increase of 63% compared with H1 FY2020. Employee Benefits expenses was the single biggest contributor accounting for just over $1 million.
  • Net loss after tax was $3.03 million, compared to $2.3 million in H1 FY2020.
  • Cash receipts from customers grew by 52% to $1.08 million over pcp and 37% on the previous half year. Net operating cash used in the half year reduced 20% year-on-year even though there was increasing investment into the North American market.
  • At the half-year mark, the cash position of IHR is $6.85 million. However, given how much investment is still required for growth, IHR will have to raise funds in 2021.

IHR has just $2.5 million of debt on its balance sheet. With its significantly high cash position and quite a few subscribers yet to be invoiced, the financial position of IHR is strong. The capital structure of the firm shows 74% equity capitalisation and 26% debt capitalisation.

Technical Analysis

Trend

IHR hit its all-time low during the COVID-19 sell-off in March 2020. During FY2020, IHR attempted several times to break above the resistance level of A$ 7 cents per share and succeeded in July 2020 which propelled the stock to A$ 25 cents per share in just a few weeks. An upside of +525%. IHR consolidated around A$ 25 cents before a second breakout that closed at A$ 50 cents per share with an all-time high peak near A$ 60 cents per share. There are now some signs of a bit of exhaustion, but the volume remains flat. The sort to mid-term price action may suggest a consolidation between 50 cents and 37.5 cents per share, slightly above the 38.20% Fibonacci level from the July 2020 – Jan 2021 swing high.

Key price levels

The key levels to observe are the base of the anticipated consolidation range at A$ 37.5 cents and the top of the range at A$ 50 cents per share. Observing the pattern of the recent price action, we may see IHR pull back to 40 cents before eventually rebound and challenge the nearest resistance at 50 cents per share.

Volume and momentum

Volume slightly decreases since the last 200-day with the 20-day volume average down by -3.6%. The price action remains bullish in the near-term, evolving in a range between A$ 45 cents and 50 cents per share.

Trade consideration

  • Market participants might be interested to enter at key support level: A$ 40 cents and A$ 37.5 cents.
  • Primary target price above $A 60 cents per share
  • Secondary target price at $A 1.0 per share
  • Consider reducing exposure below A$ 31 cents
  • It is recommended exiting the trade below A$ 25 cents

Recommendation

IntelliHR is in a high-growth market with a need to have products. There are competitors present, however, IHR has a competitive advantage over them. Performance has been positive with a record growth in subscribers and ARR for the half year FY2021. We recommend investors to “Buy” the stock after the recent consolidation.

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