The PEXA Group Ltd (ASX: PXA) share price has been under pressure in recent months.
So much so, the ASX tech stock has fallen 23% from its 52-week high and now trades much closer to a 52-week low.
The team at Goldman Sachs thinks that this could have created a buying opportunity for investors and is urging them to snap up the property settlement technology company's shares while they are cheap
What is the broker saying about this ASX tech stock?
Goldman notes that PEXA recently released its half year results. It has picked out a number of positives from the release. They are as follows:
Key positives: (1) Exchange EBITDA margins +859bps to 56.3% driving group EBITDA margins of 35.9%, run-rating ahead of FY25 guidance (> /= 34%) amid mixed trading conditions due to productivity benefits undertaken in FY24, with management flagging further opportunity for opex reduction (i.e. automation). Given better operating leverage in the Australian business, we revise FY25 EBITDA +2% to A$144mn;
(2) Improving balance sheet and FCF reducing ND/EBITDA to 1.9x (2H24 2.4x, c.2.5x target), underpinning PXA's A$50mn buyback commencing Mar-25 for six months; and (3) UK S&P capability to be sizable upon 2H25 launch (50-70% coverage, >80% in FY26) which should see segment cash burn narrow materially thereafter (GSe FY25/FY26 -A$54mn/-A$40mn) with the bulk of product development well-progressed.
In light of the above, the broker sees a lot of value in the ASX tech stock at current levels.
Big potential returns
According to the note, the broker has put a buy rating and $14.50 price target on PEXA shares.
Based on its current share price of $11.73, this implies potential upside almost 24% for investors over the next 12 months.
Commenting on its buy recommendation, Goldman Sachs said:
We see the PEXA Exchange as core digital infrastructure with a relatively defensive growth profile supported by CPI-linked price increases and mid-cycle property transactions growing in line with housing stock. We believe PEXA's market share is resilient despite interoperability being an initiative to bring more competition to the industry, and forecast incremental share gains over the cycle.
We see significant upside from the UK and PEXA Digital Growth (PDG), opening a combined incremental TAM of A$1bn, but given the early stage nature of both businesses, we remain cautious over potential execution risks. We are Buy rated given: (1) improved outlook in the core domestic business; (2) UK milestone progressively achieved; and (3) valuation screens favourably.
