Top 3 ASX tech stocks to look at before February’s earnings season
We examine one leading broker’s top three tech picks heading into the ASX’s February reporting season.
Best ASX tech stocks at a glance
As the ASX’s February earnings season fast approaches, we take a look at the top three tech stock picks from the Australian brokerage firm Bell Potter (BP) – including BP’s current price targets on these stocks and the potential upside investors could be looking at if this broker’s analysis is proven correct.
Top 3 ASX tech stocks |
||||
Name |
Ticker |
Share price |
Price Target (BP) |
Implied upside |
Appen |
APX |
$24.33 |
$27.50 |
13.02% |
Catapult Group
|
CAT |
$1.83 |
$2.35 |
28.4% |
Citadel Group
|
CGL |
$4.84 |
$5.50 |
13.36% |
Appen (APX)
It’s been a volatile 52-week period for Appen (ASX: APX) – with the AI-focused tech company's share price swinging between a low of $13.65 per share and a high of $32.00 per share.
Volatility aside, Bell Potter continues to see upside in the tech stock at current price levels – rating Appen a BUY, with a price target of $27.50 heading into February’s reporting season.
Citing the company’s history of beating guidance targets, Bell Potter not only believes that Appen could exceed the top-end of the previously stated 2019 guidance; but looking at the potential of downside risk, BP posits that there is little risk of the company not achieving its previously stated 2019 full-year guidance.
Besides this, and although Bell Potter notes that Appen trades on a relatively high 2020 price-to-earnings multiple, when looking at the company’s PEG ratio – the fast-growing tech company looks more fairly valued.
Catapult Group (CAT)
Centrally, Bell Potter is expecting good first-half results from Catapult Group (ASX: CAT), with the broker projecting strong organic first-half revenue growth of ~16%, measured against relatively subdued operating expenses.
Maybe most positively, the broker further pointed out that they expect 'positive 1H EBITDA for the first time.'
Moreover, and forming a broader part of the broker’s bullish thesis, due to the fact that a large portion of the company’s sales are concentrated in the June quarter, Bell Potter also has a positive view on CAT’s potential second-half, FY20 results. Though a small company, CAT is also likely to provide full-year guidance during next month's results release.
With all that in mind, Bell Potter currently has a BUY rating and a price target of $2.35 per share on Catapult Group.
Citadel Group (CGL)
Overall, Bell Potter pegs Citadel as a turnaround story. Although the broker expects a 'reasonable' H1 result next month, and a restatement (opposed to an upgrade) of the company’s FY20 full-year guidance, the broker nonetheless has a significant price target of $5.50 per share on CGL.
Should BP be proven correct on that price target, investors would be looking at upside of ~13% on current price levels.
Looking at Citadel's business model more broadly, the broker expects the company to report a further shift into software/ software as a service (SaaS), in terms of revenue expansion during H1; with BP arguing that this will provide the firm with 'revenue which is recurring and better quality than consulting and professional services or product sales and installation' going forward.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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