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Freelancer Ltd: Sydney broker lifts price target to $2.29 per share

Freelancer Ltd has received a $2.29 12-month share price target from Foster Stockbroking in Sydney, an increase from the previous $2.15 target. Freelancer shares last traded at $1.70.
Freelancer Ltd: Sydney broker lifts price target to $2.29 per share

Freelancer Ltd (ASX: FLN) has received a $2.29 12-month share price target from Foster Stockbroking in Sydney, an increase from the previous $2.15 target.

Freelancer shares last traded at $1.70. The following is an extract from the report.


Keep on growing ....

Investment Highlights:

- Freelancer Ltd (FLN) reported another strong quarter of receipts growth: $12.8M for 1QCY16, up 60% YoY.

Stripping out our estimate of the impact of the A$ currency tailwind (down 8% YoY vs US$), we estimate constant currency growth was still an impressive 53% YoY.

- This was the first quarter to feature a full contribution from Escrow.com for the whole three months, which boosted top-line growth.

FLN did not provide a breakdown of receipts between Escrow.com and the core freelancer marketplace for the quarter, however we have made a guesstimate in order to determine the latter’s growth. 

- We estimate that the core freelancer marketplace probably delivered ca. mid-20s% constant currency receipts growth YoY for 1QCY16, which is in-line both with the average performance for this business over the previous year’s quarters, and with our own projections.

We arrived at this estimate by assuming Escrow.com achieved around $2M in receipts (we note it achieved $8.2M in revenues last year).

We assumed negligible seasonality impact and some YoY growth.

- While FLN did not report revenues for Escrow.com, it did mention constant currency growth for the business was 18% YoY.

We believe that GPV for the business grew at a higher rate.

It is still early days for Escrow.com under the stewardship of FLN, and we expect performance of the business both at a revenue and profitability level to improve over the next 12-18 months.

- The other notable highlight of the quarterly was the $1.9M in net operating cashflow, which was greater than that achieved for the whole of CY15.

While no doubt a positive and reflecting FLN’s burgeoning leverage to scale effects, we do not expect this to be necessarily replicated over the balance of the year.

The following quarters may result in a lower operating cashflow, as the company is still in investment mode, for both Escrow.com and the core marketplace.

Cash at the end of the quarter was $33.1M.


Earnings and Valuation:

- Our earnings projections remain unchanged.  We forecast NPAT of $0.1M for both FY16e and FY17e.

- We have increased our valuation of FLN to $2.05/share now and $2.29/share in one year’s time (previously $1.95 and $2.15). This is due to roll-forward of our DCF by 12 months, employing 10% WACC and terminal growth 3%.


Recommendation:

- We maintain our Buy recommendation on FLN with a 12-month price target of $2.29/share (previously $2.15), based on our one-year forward valuation.

- Catalysts for the stock include continuing strong double-digit growth in revenues; improvements to the Escrow.com and core marketplace businesses; and synergistic acquisitions.

 

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