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Are Appen Ltd (ASX:APX) shares a buy after its AGM update?

Source: Appen

The Appen Ltd (ASX: APX) share price is on course to have a strong end to the week.

In early trade the language technology data and services provider’s shares are up 3% to $10.36 on the day of its annual general meeting.

Why are its shares shooting higher today?

This morning Appen released its annual general meeting presentation ahead of its meeting.

As well as painting a bright picture of the growing industry that Appen operates in, it also provided more precise guidance for its full year earnings.

Previously the company had stated that it expected full year underlying EBITDA for FY 2018 in the range of $50 million to $55 million based on the Australian dollar trading at an average of 80 U.S. cents.

Management advised this morning that underlying full year EBITDA is trending to the upper end of its guidance range. This is still based on the Australian dollar averaging 80 U.S. cents, despite it sinking to 75 U.S. cents recently.

It has warned, however, that its guidance is susceptible to upside or downside from factors including timing of work from major customers and Australian dollar fluctuations.

What now?

If Appen does hit the upper end of its guidance it will mean EBITDA growth of over 95% year-on-year.

While some of this stellar growth has come inorganically through the acquisition of Leapforce, a good portion of it is from increasing demand for its services in the social media and search categories.

This looks likely to mean another stellar year of growth for its Content Relevance segment following last year’s 110% increase in segment EBITDA.

Unfortunately, the same is unlikely to be said for its Language Resources segment. Last year it suffered from a decline in EBITDA and could be about to repeat this in FY 2018.

Management warned today that growth investments and its mix of work were pressuring Language Resources margins.

Should you invest?

I think the guidance provided at its annual general meeting today was conservative and in line with expectations.

It hasn’t altered my opinion of Appen and I continue to believe it is a good long-term investment option alongside the likes of Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium, Appen Ltd, and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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