Morgans says higher interest rates are putting pressure on tech stocks to be cash earners
Challenger telecommunications company has generated significant free cash flow
Airtasker on way to being cash positive this fiscal year with ~$20m on the balance sheet
Higher interest rates in recent years have dramatically changed the landscape for tech stocks with pressure mounting to transition from cash burning to earning, according to stockbroker Morgans.
Senior tech analyst Nick Harris says higher interest rates have big implications for tech companies including long dated cash flows and higher costs of capital. He says investors should consider three factors when investing in a tech stock.
READ Morgans: Tech firms must be earners in high rate times
On the ASX, Nick and his colleague Steven Sassine says these three tech stocks stand out for being cash earners rather than burners and having the funds for future growth.
Superloop (ASX:SLC)
Founded in 2014 and listed on the ASX in 2015, SLC is a challenger telecommunications company.
Harris says SLC provides great value, high quality and flexible internet connections for consumers, businesses and wholesale customers.
“This is delivered using Superloop’s software driven, industry leading infrastructure-on-demand platform which combines the NBN, last mile wireless, fibre and submarine cable capacity,” he says.
“Ultimately, they are connecting businesses and the community.
Harris says SLC is the cheapest and fastest growing telco.
“Its product offering is resonating with cash-constrained consumers as well as businesses and wholesale customers wanting to control the quality of their digital interactions with customers.
“SLC has a virtually ungeared balance sheet, having generated significant free cash flow, over the last two years.
“This gives them optionality, should value enhancing acquisition opportunities arise.”
Airtasker (ASX:ART)
ART is a local services marketplace that connects people who need to outsource tasks with those looking to provide their labour.
Sassine says ART can be described as almost infinitely horizontal, with a long-tail of tasks being advertised ranging from cleaners and gardeners to spider-removal, monetising both sides of the platform.
“Whilst acknowledging the current volatile market conditions and broader sector sentiment, we continue to remain attracted to the strong growth opportunity ahead for ART, predicated on the company successfully implementing its strategy of penetrating the large addressable market opportunity both domestically and offshore, having recently launched its platform in the UK and US,” he says.
“With around $20m cash on balance sheet and no debt and well on the way to being free cash positive this fiscal year, we view ART as having sufficient near-term flexibility to implement its organic growth strategy.”
Camplify Holdings (ASX:CHL)
CHL is ANZ’s largest peer-to-peer marketplace platform that connects RV owners to potential hirers.
CHL also has a European and UK operation via a relatively recent acquisition of PaulCamper.
“Think Airbnb for caravans, motorhomes and campervans,” Sassine says.
“It provides an end-to-end solution to both parties of the transaction including RV discovery, bookings, payment, insurance and roadside assistance.”
Sassine says in Morgan’s view CHL’s management team has shown an ability to build out a successful scalable platform.
He says while still in its infancy and not without risk as the RV space is somewhat niche, there are structural tailwinds supporting CHL with caravan and camping being a cost-conscious holiday choice.
“The large European opportunity should provide longer-term growth potential for patient investors,” he says.
“It is in a net cash position and operating cash flow positive.
“This should provide a decent buffer against the cyclical nature of tourism more broadly.”
At Stockhead, we tell it like it is. While Airtasker is a Stockhead advertiser, it did not sponsor this article.
Disclaimer: Nick Harris owns shares in SLC, while Steven Sassine owns shares in ART and CHL.
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