Redbubble Limited Raising Recommendation

Transcription

1 Software and Services Australian Equity Research 26 October 2017 BUY from SPECULATIVE BUY PRICE TARGET unchanged Price (27-Oct) Ticker A$1.20 A$0.76 RBL-ASX 52-Week Range (A$): Market Cap (A$M): 157 Dividend /Shr (AUc): 0.0 Dividend Yield (%) : 0.0 Enterprise Value (A$M): 130 Cash (A$M): 27.8 Long-Term Debt (A$M): 0.0 FYE Jun 2017A 2018E 2019E 2020E Sales (A$M) Previous Gross Profit (A$M) EBITDA (A$M) (8.3) (1.7) Previous - (3.1) Net Income Adj (A$M) (7.7) (6.1) (2.0) 4.8 Previous - (7.2) (3.4) 4.3 EPS Adj&Dil (AUc) (3.76) (2.67) (0.86) 2.1 Previous - (3.15) (1.47) 1.9 Net Debt (Cash) (A$M) (28) (22) (18) (23) Previous - (21) (15) (20) Nov-16 Dec-16 RBL Jan-17 Source:FactSet Feb-17 Mar-17 Apr-17 Priced intraday 27 October 2017 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Owen Humphries Analyst Canaccord Genuity (Australia) Ltd. owen.humphries@canaccord.com.au Momentum into the peak Christmas period Redbubble (RBL) released its 1Q18a quarterly report illustrating strong momentum with the group on track to achieve its stated FY18 target of "top-line constant currency (cc) growth in line with FY17 (+30%)". RBL reported Gross Transaction Value (GTV) growth of +26% during 1Q18a that translated to an impressive +31% growth on a constant currency basis. The strong AUD was again a drag on growth (-5%), particularly against the USD, with 93% of RBL's revenues sourced offshore. Earnings revisions: FY18e, FY19e & FY20e gross profit increased +2%, +3% & +1%. Key points from the quarterly: RBL illustrated prudent cost control with opex (incl. paid acq. costs) increasing just +2.8% vs. 4Q17a (despite a higher sales period). Going forward management is targeting opex growth (incl. paid acq) to be half GTV growth. This approach will aid strong operating leverage with RBL "increasingly confident of meeting its previous guidance of moving into ongoing operating EBITDA profitability late in FY18". RBL generated positive OCF (+$3.2m) for the first time in 1Q and provides momentum into a strong cash collections period during Christmas (2Q >35% GTV cont.). RBL reported a cash balance of A$29m, and given the negative working capital cycle, we expect this balance to materially increase by Dec-17 (CGAu est. 1H18e cash >$40m). The balance sheet strength enables the group to invest in sustainable/long term growth as it approaches EBITDA breakeven in FY18e. RBL's 1Q18a constant currency revenue growth (+26%) slightly lagged GTV growth (+31%) due to a) timing differences between ordering/shipping in a busy Sept-17 and b) slightly larger sales tax component following RBL's successful entrance into various European markets (Spain, Germany, France). RBL's gross profit margin slightly dipped in 1Q18a (35.6% vs. 36.4% in the pcp) following product mix/price reductions, however was equivalent to FY17a (FY %). In previous periods RBL has been successful in extracting better margins from its manufacturers/fulfillers, and we expect further reductions in 2Q18e. The Average Order Value (AOV) reduced -7.9% vs. pcp (A$43.6), with the major driver the strong AUD (-5%). We expect this to be partially reversed as the AUD moderates into the peak 2Q. RBL continues to be impacted by the rapid shift to mobile (50%/24% mobile/desktop traffic growth) which derives a larger proportion of traffic through paid sources and a lower customer conversion rate (mobile 1.3%, desktop 2.6%). This resulted in a modest uplift to RBL's CAC during the period. RBL financials mimic those of other global high growth marketplaces, with a capital light balance sheet and strong revenue growth. We view RBL as fundamentally undervalued trading at 2.1x FY19e EV/gross profit as the company approaches breakeven with a strong revenue growth profile (FY18e >25%, 5yr CAGR +51%). In our view, achieving EBITDA breakeven in 4Q18e will be a key milestone and likely improve investor sentiment to the stock as it generates profitable growth. Following management's increased confidence in achieving breakeven, we upgrade to a BUY recommendation (prev. SPEC. BUY) and maintain our price target of $1.20ps. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. For important information, please see the Important Disclosures beginning on page 7 of this document.

2 Figure 1: CGAu RBL forecasts RedBubble Limited $ 0.76 Profit & Loss ($m) - Jun YE 2016A 2017A 2018F 2019F 2020F Valuation ratios 2016A 2017A 2018F 2019F 2020F Gross Transaction Value EPS (cps) Sales Revenue EPS Growth (%) nmf nmf nmf nmf nmf Gross Profit Enterprise Value ($m) - pro-forma Cust. Acq costs EV/Revenue Gross Profit (post CAC) EV/Gross Profit Admin/mkting EV / Sustainable EBITDA (x) Salaries EBITDA EV/GPV EBITDA - excl. growth opex P/E (x) D & A EV / Statutory EBITDA (x) EBIT EV / EBIT (x) Net Interest Expense FCF yield (%) -3.5% -3.9% 2.0% 3.1% 7.3% NPBT DPS (cps) Tax expense NPAT (Normalised) Balance Sheet ratios 2016A 2017A 2018F 2019F 2020F Non-recurring Net Debt (cash) NPAT (Reported) NTA per share ($) Price / NTA (x) Gross Profit Margin (%) 34.0% 35.5% 35.0% 34.0% 34.0% Shares on issue EBITDA Margin % (excl. growth opex) 10.7% 13.3% 15.9% 17.2% 19.3% EFPOWA (m) Statutory EBITDA Margin (%) -7.2% -5.9% -1.0% 1.8% 4.9% EBIT Margin (%) -10.7% -10.5% -4.9% -1.4% 2.2% Interim Analysis 2H16A 1H17A 2H17A 1H18E 2H18E NPAT Margin (%) -15.1% -5.4% -3.5% -0.9% 1.8% GTV Revenues Cash Flow ($m) - Jun YE 2016A 2017A 2018F 2019F 2020F Gross Profit Operating EBITDA EBIT Interest & Tax Paid EBIT margin (%) -12.7% -5.3% -17.1% 22.5% -41.2% +/- change in Work. Cap DPS other Operating Cashflow Assumptions 2016A 2017A 2018F 2019F 2020F - Capex (PPE) CAC Capex (Intangibles) Avg Order Value Aquisitions/divestments % New GTV 65% 62% 58% 58% 58% Free Cashflow Conversion rate 1.9% 2.0% 2.1% 2.0% 2.0% - Ord Dividends GTV Growth 62% 23% 24% 23% 23% - Equity /other Revenue Growth 61% 23% 25% 23% 23% Net Cashflow GP Margins 34.0% 35.5% 35.0% 34.0% 34.0% Cash at beginning of period Operating Expenses growth 53% 17% 3% 3% 3% +/- borrowings / other Take-rate (GP/GTV) 27.3% 28.6% 28.4% 27.5% 27.5% Cash at end of period Board of Directors/Substantial shareholders Balance Sheet - Jun YE 2016A 2017A 2018F 2019F 2020F Board of Directors Shareholding % Cash Richard Cawsey % Debtors Grant Murdoch 0.1 0% PPE Gregory Lockwood (Piton Capital) 6.5 3% Intangibles Stephanie Tilenius 0.0 0% Other assets Teresa Engelhard 0.0 0% Total Assets Martin Hosking % Borrowings Trade Creditors Substantial shareholders Shareholding % Other Liabilities Blackbird % Total Liabilities Acorn % NET ASSETS Osmium Partners % Source: Company Reports, Canaccord Genuity estimates Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 2

3 Figure 2: Consistent growth in GTV in recent years A$m RBL Quarterly GTV (A$m) % 120% % 80% 60% 40% 20% 108% 82% 78% 46% RBL Quarterly GTV growth (%) 18% 47% 56% 73% 99% 71% 47% 40% Appreciating AUD impacting GTV growth 25% 26% 26% 21% 20% 0.0 0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Source: Company Reports, Canaccord Genuity estimates Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 3

4 Figure 3: P&L modeling assumption Model Assumptions FY14A 1H15E 2H15E FY15A 1H16A 2H16A FY16A 1H17A 2H17A FY17A FY18E FY19E FY20E FY21E FY22E FY23E GTV A$m Repeat GTV A$m % Repeat % % 34.2% 32.6% 33.9% 37.6% 35.5% 37.3% 38.8% 38.0% 42.5% 42.0% 42.0% 42.0% 42.0% 42.0% New GTV A$m % New % 73.0% 69.0% 65.8% 67.4% 66.1% 62.4% 64.5% 62.7% 61.2% 62.0% 57.5% 58.0% 58.0% 58.0% 58.0% 58.0% Visits m Conversion Rate % 1.2% 1.9% 1.6% 1.8% 2.0% 1.7% 1.9% 2.2% 1.7% 2.0% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% AOV (A$) A$ Growth % 0.2% 7.7% 6.0% 7.3% -8.3% -10.4% -9.6% -3% -1% -1% 0% 0% 0% GP/Order A$ Total Cust. Orders m New Cust. Orders m Acq. costs A$m New order/cust. (CAC) $/orde CAC inflation % 35% 19% 24% 34% 28% 7% 4% 5% 3% 3% 3% P&L Breakdown FY14A 1H15 2H15 FY15A 1H16A 2H16A FY16A 1H17A 2H17A FY17A FY18E FY19E FY20E FY21E FY22E FY23E Revenue and Gross Profit forecasts Total GTV A$m Growth % 76% 49% 79% 44% 62% 23% 23% 23% 24% 23% 23% 17% 17% 17% Redbubble Revenue A$m Revenue take-rate % 82.0% 81.2% 79.7% 80.4% 77.6% 83.5% 80.2% 79.8% 81.1% 80.4% 81.0% 81.0% 81.0% 81.0% 81.0% 81.0% Growth 76.7% 46.3% 71.3% 50.5% 61.2% 26.3% 19.2% 23.1% 24.8% 22.7% 22.6% 16.5% 16.5% 16.5% Effective Take rate % 34.0% 34.7% 33.1% 33.9% 32.9% 35.4% 34.0% 36.0% 35.0% 35.5% 35.0% 34.0% 34.0% 34.0% 34.0% 34.0% Gross Profit A$m Growth % 74% 46% 62% 61% 62% 38% 18% 28% 23% 19% 23% 17% 17% 17% Expense Breakdown Paid Acq. costs A$m Growth % 85% 68% 97% 80% 56% 65% 60% 30% 30% 30% 20% 20% 20% Gross Profit (after paid acq costs) A$m Admin. Costs A$m Growth % 104% 51% 40% 45% 18% 5% 9% 3% 3% 3% 4% 4% 4% Employee/contractor costs A$m Growth % 123% 174% 21% 67% 20% 2% 20% 5% 3% 3% 3% 3% 3% Marketing (other) costs A$m Growth % -6% -18% 3% 3% 0% 0% 0% 0% Operating Expenses A$m Growth Opex A$m EBITDA (pre-growth) A$m Maintenance opex** A$m EBITDA (normal) A$m Depreciaiton & Amortisation A$m EBIT A$m Interest A$m NPBT A$m Tax (@25%) A$m NPAT (normalised) A$m Non-recurring A$m NPAT (reported) A$m **CGAu est. for previous years Source: Company Reports, Canaccord Genuity estimates Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 4

5 Figure 4: RBL key growth initiatives Source: Company Reports, Canaccord Genuity Figure 5: CGAu DCF valuation DCF Valuation FY18 FY19 FY20 FY21 FY22 FY23 Terminal Value Look-through valuation Sustainable EBITDA A$m Capex A$m Look-through EBITDA (post capex) A$m Discount factor x Valuation A$m Growth opex valuation Growth cost A$m Discount factor x Valuation A$m Tax, Interest Exp. & ΔW.C Discount factor x Valuation A$m Enterprise Value A$m Risk Free Rate % 2.8% Net Cash/(Debt) A$m 27.8 Equity RP % 5.5% Equity Valuation A$m Beta x 2.2 EFPOWA # Cost of Equity % 15% Valuation (today) $ps 1.04 Debt proportion % 0.0% Cost of Equity % 15% Terminal growth rate % 2.0% Valuation (1 yr forward) cps 1.20 Source: Company Reports, Canaccord Genuity estimates Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 5

6 Figure 6: RBL peer group and multiple expansion opportunity Enterprise Revenue Gross Profit EV/Revenue EV/Gross Profit Revenue Growth Company Ticker Price Currency Market Cap Value FY16 FY17 FY18 FY19 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FY16 FY17 FY18 FY19 Freelancer FLN $0.59 AUD $271 $ % -1% 9% 14% Etsy ETSY $15.81 USD $1,870 $1, % 20% 18% 17% Shutterstock SSTK $34.60 USD $1,198 $ % 8% 10% 9% Shutterfly SFLY $44.20 USD $1,450 $1,760 1,157 1,152 1,213 1, % 0% 5% 6% Stamps.com Inc STMP $ USD $3,887 $3, % 28% 17% ASOS AIM:ASC $56.10 GBP $4,599 $4,439 1,437 1,935 2,466 2, , % 35% 27% 21% Boohoo.com AIM:BOO $1.97 GBP $2,261 $2, % 55% 84% 36% YOOX Net-a-Porter BIT:YNAP $32.74 EUR $4,389 $4,335 1,875 2,137 2,501 2, % 14% 17% 19% Webjet ASX:WEB $11.82 AUD $1,397 $1, % 51% 29% 20% Seek SEK $18.34 AUD $6,399 $6, ,018 1,249 1, , % 4% 23% 11% REA Group REA $71.49 AUD $9,416 $9, % 7% 18% 13% Carsales.com.au ASX:CAR $13.85 AUD $3,359 $3, % 7% 10% 8% Redbubble RBL $0.76 AUD $172 $ % 25% 22% 23% Average (excl. RB) her high growth global marketplaces Facebook FB $ USD $495,456 $460,004 27,352 39,238 51,066 63,697 22,428 32,175 41, % 43% 30% 25% Twitter TWTR $17.14 USD $12,588 $10,254 2,554 2,401 2,548 2,733 1,788 1,680 1, % -6% 6% 7% Netflix NFLX $ USD $83,850 $86,993 8,751 11,048 14,905 17,949 2,800 3,535 4, % 26% 35% 20% Amazon AMZN $ USD $467,366 $469, , , , ,277 39,727 50,659 64, % 28% 28% 19% VIP Shop VIPS $7.97 USD $4,683 $4,746 56,036 71,763 85,932 98,449 14,009 17,941 21, % 28% 20% 15% Alibaba Group (USD) BABA $ USD $430,548 $371,252 15,360 21,623 35,709 47,770 10,752 15,136 24, % 41% 65% 34% ebay EBay $36.68 USD $38,315 $42,283 8,984 9,565 10,250 10,906 7,097 7,556 8, % 6% 7% 6% Leaf Group LFGR $7.00 USD $141 $ % 10% 12% 15% Wayfair W $64.52 USD $5,625 $5,451 3,367 4,621 5,932 7, ,109 1, % 37% 28% 26% Grubhub GRUB $57.79 USD $4,993 $4, , % 38% 29% 24% Average (excl. RB) Source: Company Reports, Canaccord Genuity, CapitalIQ consensus estimates FY18 EV/Gross Profit (x) EV/Gross Profit (FY18) REA Group x 20.0 Webjet 18.0 Carsales.com.au Facebook Stamps.com Grubhub Average 7.6x Amazon 8.0 Etsy Twitter Seek ebay Redbubble 2.4x Wayfair Freelancer.com 4.0 ASOS YOOX Shutterfly Leaf Group Shutterstock Redbubble 0.0 0% 5% 10% 15% 20% 25% 30% 35% Revenue Growth (2yr CAGR, FY18-FY19) Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 6

7 Appendix: Important Disclosures Analyst Certification Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst s coverage universe and (ii) no part of the authoring analyst s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research. Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Sector Coverage Individuals identified as Sector Coverage cover a subject company s industry in the identified jurisdiction, but are not authoring analysts of the report. Investment Recommendation Date and time of first dissemination: October 26, 2017, 20:56 ET Date and time of production: October 26, 2017, 20:56 ET Target Price / Valuation Methodology: - RBL Our price target of $1.20ps has been derived using a DCF methodology. Risks to achieving Target Price / Valuation: - RBL Attracting and retaining independent artists; attracting and converting customers; a shift in customer trend; and action of competitors or substitute offerings. Distribution of Ratings: Global Stock Ratings (as of 10/26/17) Rating Coverage Universe IB Clients # % % Buy % 39.79% Hold % 23.51% Sell % 17.39% Speculative Buy % 68.89% 927* 100.0% *Total includes stocks that are Under Review Canaccord Genuity Ratings System BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months. HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months. SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months. NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer. Risk-adjusted return refers to the expected return in relation to the amount of risk associated with the designated investment or the relevant issuer. Risk Qualifier SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss. 12-Month Recommendation History (as of date same as the Global Stock Ratings table) A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period may be obtained at the following website (provided as a hyperlink if this report is being read electronically) Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 7

8 Required Company-Specific Disclosures (as of date of this publication) currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to. In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from. In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-manager of a public offering of securities of or any publicly disclosed offer of securities of or in any related derivatives. Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from in the next three months. The primary analyst, a member of primary analyst's household, or any individual directly involved in the preparation of this research, has a long position in the shares or derivatives, or has any other financial interest in, the value of which increases as the value of the underlying equity increases. I:B:AUD2.59 B:AUD /30/16 08/02/16 AUD3.00 AUD2.50 AUD2.00 AUD1.50 AUD1.00 B:AUD /25/16 B:AUD /30/17 H:AUD /26/17 Rating History as of 10/24/2017 H:AUD /24/17 SB:AUD /27/17 AUD0.50 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Closing Price Target Price Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR) Online Disclosures Up-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically) or by sending a request to Canaccord Genuity Corp. Research, Attn: Disclosures, P.O. Box Pacific Centre, Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a request by to disclosures@canaccordgenuity.com. The reader may also obtain a copy of Canaccord Genuity s policies and procedures regarding the dissemination of research by following the steps outlined above. General Disclaimers See Required Company-Specific Disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; research analyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and related derivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found in a hyperlink located in the section labeled, Compendium Reports. Canaccord Genuity is the business name used by certain wholly owned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity Inc., Canaccord Genuity Limited, Canaccord Genuity Corp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc. The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadian broker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity Inc., a US broker-dealer with principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer with principal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer with principal offices located in Sydney and Melbourne. The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon (among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Banking activities, or to recommendations contained in the research. Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity s policy on Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 8

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US clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity Inc. Analysts employed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 9

10 For United Kingdom and European Residents: This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited, which is authorized and regulated by the Financial Conduct Authority. This research is for distribution only to persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) (High Net Worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This material is not for distribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority. For Jersey, Guernsey and Isle of Man Residents: This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been produced by an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we are providing it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your client agreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in any doubt, you should consult your financial adviser. CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isle of Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity Group Inc. For Australian Residents: This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN holder of AFS Licence No To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into account their own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financial products discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. Canaccord Genuity Wealth Management is a division of Canaccord Genuity (Australia) Limited. For Hong Kong Residents: This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and Futures Commission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securities and Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients of this report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: ) in respect of any matters arising from, or in connection with, this research. Additional information is available on request. Copyright Canaccord Genuity Corp Member IIROC/Canadian Investor Protection Fund Copyright Canaccord Genuity Limited Member LSE, authorized and regulated by the Financial Conduct Authority. Copyright Canaccord Genuity Inc Member FINRA/SIPC Copyright Canaccord Genuity (Australia) Limited Participant of ASX Group, Chi-x Australia and of the NSX. Authorized and regulated by ASIC. All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to Canaccord Genuity Corp., Canaccord Genuity Limited, Canaccord Genuity Inc or Canaccord Genuity Group Inc. None of the material, nor its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express written permission of the entities listed above. None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other party including by way of any form of social media, without the prior express written permission of the entities listed above. Buy from Speculative Buy Target Price A$1.20 unchanged 26 October 2017 Software and Services 10