A Glance at Two IT Stocks- CDA, CAR. Are these undervalued?

In recent times, most of the sectors on the ASX have been majorly impacted because of the coronavirus outbreak. The stock prices of listed companies have dropped significantly. The stock prices of companies having direct trade relations with China have been impacted considerably, and their outlook has also been bearish.

When we talk about the current statistics of Australia, there are 298 cases of infection due to coronavirus along with five deaths and the mode of transmission of the virus happens to be the physical person to person contact.

In order to mitigate the risk of the spread of COVID-19, the government in Australia has applied travel restrictions to reduce the entry of foreigners from high-risk countries. The government continues to screen the visitors coming to Australia and continues to keep up with border surveillance. The government has started applying border security measures at international air & seaports along with announcements and signage.

The cases so far in Australia as well as on a global scale have created fear amongst the people as well as investors who have started selling off their stock holdings and transferring money to safe-haven assets.

Because of the fear of the epidemic, the stocks of some of the companies which have no trade relations with China are also available at a lower price.

In this article, we would be looking at two such IT companies, whose shares are available at lower prices. Let’s know more about these stocks.

Codan Limited

Codan Limited (ASX: CDA) is a company that is engaged in the development of such technology that solves communication, safety, security as well as productivity challenges in the toughest environments on earth. The company was established in 1959 & its headquarters are situated in South Australia. It has its presence with offices located in the USA, Canada, the UAE, Ireland & South Africa.

The company’s products are sold in 150 + nations & have a global group of dealers, distributors & agents who facilitate the delivery of solutions across the globe whenever the client needs them.

In 1H FY2020 which ended on 31st December 2019, the company delivered the highest half-year profit in its history of $30.4 million. The company's result was outstanding across its Communications and Minelab, which were the driving factors behind the result. The robust performance was due to the continued strength of gold detector sales in Africa across various products along with several major contracts delivered in the Communications business.

The balance sheet of the company reflects an increase in the net asset of the company from $211.2 million in 2H FY2019 to $228.3million in 1H FY2020.

The company reported a significant in cash receipt from customers during the period. It increased from $140.389 million in 1H FY2019 to $172.090 million in 1H FY2020. The net cash from the operating activities increased approximately 3.3 times the operating cash inflow during the prior corresponding period. In 1H FY2019, the company’s operating cash inflow was $12.469 million, which increased to $41.368 million in 1H FY2020.

There was a marginal increase in the cash outflow from the investing activities and a slight decrease in cash outflow from the financing activities.

Overall, there was a net increase in the cash of $13.476 million by the end of 1H FY2020. The net cash and cash equivalents for the period ended 31st December 2019 were $50.974 million.

Also, this company has a history of paying a dividend since 2016.

Outlook:

The company is well-positioned for the second half of FY2020. The company has a strong backorder for its Vanquish™ that is scheduled to be delivered during the second half of the financial year. There would be a continued potential of gold detector sales, and the run rate is expected to remain consistent with that in the first half.

Communications provided $21 million in large contracts in the first half. However, the company expects that this may not be happening again in the second half of the year.

Stock Information:

In the year to date period, the stock has provided a negative return of 32.78%, and in the time frame of 1 year, the shares have reached a peak price of ~ $8.64 apiece. At AEDT 2:58 PM on 17th March 2020, the shares were trading flat at $4.9 apiece.

carsales.com Limited

carsales.com Limited (ASX: CAR) is the largest online automotive, motorcycle as well as marine classifieds business in Australia. The company’s business is to attract Aussies fascinated in buying or selling cars, motorbikes, trucks, caravans & boats. The company, along with its subsidiary company, employs 600+ individuals in Australia and develops world-leading technology & advertising solutions that give thrust to its businesses globally. CAR has operations throughout the APAC zone and has an interest in top online automotive classified businesses in Brazil, South Korea, Indonesia, Malaysia, Mexico & Thailand.

The company’s product portfolio continues to expand and diversify, which enables it to grow with the changing requirements of its customers.

The revenue of the company in 1H FY2020 improved by 5% to $214 million. The statutory NPAT increased 22% in 1H FY2020 to $71 million as compared to the prior corresponding period (pcp). The interim dividend declared for the period was 22 cents per share, up 7% on pcp.

The result of the company was supported by the rising contribution of the high growth International portfolio plus the strong performance of the core Australian operations along with the margin expansion across the Australian & International businesses.

The balance sheet of the company shows an increase in the net asset base from $314.562 million at the end of 1H FY2019 to $327.013 million at the end of 1HFY2020. The net cash and cash equivalents by the end of 1H FY2020 were $108.642 million.

Outlook:

The company remains consistent with its guidance at AGM in October 2019 and anticipates Group Revenue, adjusted EBITDA & Adjusted NPAT development to remain robust in FY2020. The company’s performance remains solid in January 2020 except for display advertising.

Further, the company expects good continuous growth in revenue and earnings in Korea and robust growth in Brazil. The Latin America growth would remain the same compared to that achieved in the first half of FY20.

Stock Information:

The stock of CAR has provided negative YTD return of 27.99%. In the last year, the shares have reached a maximum level of $19.6 and a minimum of $11.72. At AEDT 3:47 PM on 17th March 2020, the shares were trading at $12.81, up 5.955% from its previous close.


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