Technology Sector Outlook 2020; A Look At OCL, YOJ, ELS, AVA

The year 2019 has been a great year for the technology sector. The sector outperformed the benchmark index S&P/ASX 200. In February 2019, three international tech giants pumped a total investment of around $326 million in the tech sector, targeting to expand their business in Australia.

As per ACS’ report ‘Australia’s Digital Pulse 2019’, there would be an increase in demand for technology workers in the coming years. The demand is expected to increase by 100,000 between 2018 and 2024, in trend terms, with number of tech workers to grow to 792,000.

Initiatives were also taken during 2019 to develop the tech workforce in Australia like improving the flexibility of learning programs to get the workers trained in digital skills such as mastery-based learning & better recognition of smaller flexible curriculums as formal credentials. There was private as well as public investment in the improvement of core smart city initiatives at a local level. Initiatives were also taken to attract more digital investment in Australia.

In 2020, emerging technologies like artificial intelligence, blockchain, IoT and quantum computing would evolve as well as enhance several basic tasks & interactions.

Artificial Intelligence is an emerging technology that has the potential to automate the repetitive and risky task. In the long run, this technology would assist in increasing productivity and the development of innovative customer products.

On a global level, it is expected that AI would pour trillions of dollars in the coming decades. On this front, the Australian government undertook steps during 2019 and introduced 8 AI Ethics Principles, supported by NAB, Commonwealth Bank, Telstra, Microsoft and Flamingo AI.

Quantum computing is another emerging technology that would help to increase the available computing power exponentially and solve the problems that cannot be addressed with the present computers. This technology has the power to crack the code easily that can disrupt the existing security methods.

With this backdrop, let us discuss four technology stocks listed on the ASX along with their FY2020 outlook.

Objective Corporation Limited (ASX: OCL)

Objective Corporation Limited (ASX: OCL) is a software company specialising in enterprise content management, including technologies that deal with document management, record keeping, workflow, and web content management. The company, which manages business processes efficiently, using 100% digital technology, registered revenue of $62.06 million in FY2019 ended 30 June 2019.

In FY2019, annual recurring revenue (ARR) grew by 15% to $46.6 million and net profit was noted at $9.1 million, a 23% growth from the previous corresponding period (pcp).

Outlook for FY2020:

During 2020, the company plans to use its strong cash flows generated from the business towards existing product portfolio and introduce new products via acquisitions.

OCL would also focus on growing its revenue within existing customer base. In FY2020, OCL expects to register material growth in revenue and profitability with all business units to be contributing to profit by the closure of FY2020.

1H FY2020 Trading Update:

On 10 January 2020, OCL provided a trading update for 1H FY2020, with revenue (expected) of $33.2 million and operating profit to grow by 24% year on year to $5.8 million. ARR at 31 December 2019 was noted at $54.1 million, representing growth of 28% year on year. Recurring revenue for 1H FY2020 was reported at 75% of total revenue.

Yojee Limited (ASX: YOJ)

Yojee Limited (ASX: YOJ) is a new leader in logistics technology. The company helps small and medium enterprises and large multinationals in the logistics industry through its web-based cloud solution in attaining a greater level of efficiency as well as digital automation. YOJ’s software uses Artificial Intelligence (AI) and Machine Learning (ML) for its superior fleet management and optimisation, helping to gain greater time and cost efficiencies.

FY2019 Results; Revenue growth of 99%:

• Revenue increased by 99% to $1.38 million.
• Net loss for the period was $3.72 million, up 35% on pcp.

Outlook:

YOJ would be focusing on customer requirements via feedback and user behaviour data. This along with the growth of existing small & medium enterprise and global leader accounts plus clients in advanced discussions across small businesses to some of the biggest companies would place YOJ in a strong position to scale in FY2020.

Q1 FY2020 Highlights:

• Contracted revenue from existing agreements for the quarter ended 30 September 2019 stood at $1.2 million.
• Cash receipt during the quarter was $156,000. The value declined from the previous quarter as a result of timing issues pushing payments into the December quarter.
• 14 new commercial customer SaaS agreements were signed during the period.
• First North American client was signed via an inbound enquiry, showing the strengthening reputation of YOJ as well as its presence on the global front.

Capital Raising:

On 16 December 2019, YOJ announced to have raised $3.5 million via a share placement to institutional and sophisticated investors by issuing 70 million shares at $0.05 per share. It also invited the existing shareholders to invest in the company through a share purchase plan to raise up to $2 million at the same rate as that of the Placement.

The proceeds raised would be used by the company to further build out APAC and international marketplaces, improve leadership in its industry-leading smart technologies like AI and logistics network interconnectivity, and increase sales presence to capitalise on opportunities. Moreover, the funds would be directed towards fast tracking customer adoption & transaction volumes and for administration and general working capital purposes.

Elsight Limited (ASX: ELS)

Elsight Limited (ASX: ELS) provides advanced connectivity technology for the “Age of Connectivity,” aimed at reliable, secured, & high bandwidth, bi-directional data transmission from anyplace, to anywhere over current cellular infrastructure, in real-time.

1H FY2019; 28% Growth in Revenue:

• Revenue from ordinary activities went up by 28% to US$863.66 million.
• Loss for the period was $1.61 million, a decline of 29% from 1H FY2018.

Developments during 2H FY2019:

Elsight Limited announced the commercial launch of Halo (its flagship offering) in February 2019 and since then, the company secured multiple proof-of-concept (POC) trials and lab tests, in various phases of completion.

ELO’s POC partners, as well as independent experts, have provided feedback from the in-the-field testing, helping the company to commence further extensive research testing and development. The feedback obtained along with ongoing close engagement with the partners shows the commercial feasibility of Halo. The company started working towards securing commercial orders for Halo from one or more of these initial partners.

• Started an initial Halo Proof of Concept trial with drone technology developer, Gadfin.
• Received the First Purchase Order for Halo Units from Airobotics in October 2019.
• Announced that Halo v1.1 is ready for commercial deployment to strategic clients and decided to open its North American Office in Atlanta, GA.
• Received an initial purchase order of $91,000 for Halo firmware equipped Multichannel units from The National Fire and Rescue Authority, the official fire and rescue authority of the State of Israel, in December 2019.

On 13 January 2019, ELS announced to have received a material purchase order for 50 Halo units following the conclusion of a large-scale Proof-of-Concept (POC) field trial with Israel Aerospace Industries (IAI). This initial purchase order boosts the company’s partnership with IAI.

Ava Risk Group Limited (ASX: AVA)

Ava Risk Group Limited (ASX: AVA), a market leader of risk management services and technologies, is trusted by some of the most security-conscious commercial, military, industrial as well as government customers across the globe.

FY2019 Results; Revenue up by 59%

• FY2019 ended 30 June 2019 witnessed a 59% growth in revenue to $31.6 million.
• Loss during the period was $4.72 million.

Outlook for FY2020:

The company is confident and optimistic about the future. Its strategy along with its people, performance and portfolio of world-leading products and solutions would help the company to be strong for many years to come. In FY2020, the company would focus on:

• Building as well as converting a material sales pipeline via improved focus and practices for new business development activity.
• Completing various major Proof of Concepts along with validation trials under progress.
• Continued product and service innovation with focus on adjacent market segment applications along with migrating or upgrading its present installed base of customers to the latest version of its market-leading technologies.
• Lowering the operational cost base.

Q1 FY2020; Achieved Group Revenue of $9.9 million.

In Q1 FY2020 ended 30 September 2019, AVA registered group revenue of $9.9 million. As on 30 September 2019, the company’s cash at bank was $3.6 million, representing a growth of $0.5 million since 30 June 2019.

On 13 December 2019, the company announced that its Technology Division secured additional orders for the perimeter detection systems of Future Fibre Technologies (FFT) from existing government clients.

• Received purchase orders worth $630,000 for FFT’s Aura Ai-2 platform to protect sensitive US Government sites.
• Purchase orders valued at $350k for FFT’s SecureFence platform to protect military installations in a South-East Asian nation.

On 18 December 2019, AVA unveiled to have received and accepted a purchase order for US$11.9 million of licencing income from its in-country manufacturing partner, SFO Technologies Private Limited and received another US$2.1 million Bank Guarantee from SFO as security for SFO payment obligations to Ava.

On 9 January 2020, the company confirmed the delivery of the first 200 systems from SFO to the end-user before the December 2019 end. The next batch of 200 systems is expected to be delivered in January 2020.

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