My Rewards International Ltd (ASX:MRI) has received a ‘speculative buy’ recommendation in an initiation report from Lodge Partners along with a valuation of $0.05 and implied returns of 117%.
The analyst is expecting a “turnaround’ for the global subscription-based technology company as the HY23 results demonstrated promising signs, riding on new partnerships it has in place including the likes of Alibaba Group (NYSE:BABA).
What's more, other than an increase in contributions from the recent partnership deals and clients, full-year revenue is expected to increase by 70% from FY22.
“We see this trend to higher gross margins continuing via the new partnerships it has in place such as the Alibaba agreement which will see it as the preferred aggregator of Australian suppliers for their platform,” says the analyst.
MRI is currently trading at $0.019 on the ASX with a market cap of approximately $3.74 million.
Following are excerpts from Lodge Partners' initiation report:
Key highlights
Since listing in February 2022 MRI has made several developments:
- MRI acquired Perx Rewards which had revenue of $12.6m alone in FY21.
- Entered into several new partnerships, in particular, with Tmall Global – an Alibaba Group company, which has given MRI exposure to large overseas markets. Tmall Global offers MRI suppliers exposure to Chinese buyers.
- MRI has invested in additional functionalities such as a digital wallet and a cashback function, CRM and fulfilment and logistics technologies to help grow client engagements.
- Increase financial operations by increasing its gross margins from negative 0.5% to 3% and increase revenue 39% to $13.253 million through the integration of Perx for the HY23 results.
- Rapidly growing in the large rewards industry which by 2030 it is estimated to grow to US$15 billion at 10.5% annual growth rate.
- Acquisition of Frankly Agency Pty Ltd upon shareholder approval one of Larry Kestelman’s controlled and operated entities will become a major shareholder.
Due to a focus in growing market share as a distribution channel for goods and services and customer (both employee and consumer) interaction portal, MRI has been reporting both losses and low gross margins.
However, the recent HY23 results showed promising signs.
As well as the integration of Perx reward, MRI saw increased gross margins due to an increase in business client membership fees.
We see this trend to higher gross margins continuing via the new partnerships it has in place such as the Alibaba agreement which will see it as the preferred aggregator of Australian suppliers for their platform.
As well as the increase in contributions from the other recent partnership deals and clients, we expect full-year revenue to increase 70% from FY22.
We expect this trajectory to continue into FY24 before tapering off, albeit we are taking a conservative view FY25 and beyond. We have therefore placed a valuation of $0.05 per share on MRI with a SPEC BUY recommendation.
Our valuation of $0.05 is based upon a WACC of 9% with a terminal growth rate of 2%.