Qoria Ltd (ASX: QOR) shares were well and truly out of form on Friday and crashed 19% to 26 cents.
Investors were selling the ASX cyber safety share following the release of its quarterly update and an update on its proposed merger with Aura.
While this decline is disappointing, the team at Bell Potter believes it has created a buying opportunity and is tipping a significant rebound.
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What is the broker saying about this ASX share?
Bell Potter was a touch disappointed with Qoria's performance during the third quarter. It notes that its annual recurring revenue (ARR) was softer than expected, which ultimately led to a miss on cash receipts. It said:
Exit ARR of $151m at 31 March was 3% below our forecast of $155m and the miss was driven by lower-than-expected K12 growth and a higher-than-expected negative FX impact of $5.1m. The positive surprise, however, was record Qustodio growth for the quarter of $2.7m when Q3 is meant to be the seasonally weak quarter for the consumer business.
Cash receipts of $23.3m was 7% below our forecast of $25.0m and again was partly driven by FX headwinds but was an unusually low 18% of our full year forecast (is more usually ~20%). Net operating cash flow was an outflow of $4.7m versus our forecast of an inflow of $1.5m with the difference being the lower cash receipts and higher working capital.
Big rebound potential
While this was disappointing, Bell Potter remains positive. In response, the broker has retained its buy rating on the ASX share with a reduced price target of 50 cents (from 60 cents).
Based on its current share price of 26 cents, this implies potential upside of 92% for investors over the next 12 months.
Commenting on its recommendation and expectations for the future, Bell Potter said:
We have reduced the multiple we apply in the EV/Revenue valuation from 4.5x to 4x and increased the WACC we apply in the DCF from 9.1% to 9.3% due to the lowerthan-expected Q3 result and the what-looks-to-be delay in positive free cash flow. The net result is an 18% decrease in our target price to $0.50 which is still close to double the share price so we maintain our BUY recommendation.
The thesis is now obviously more about the combined Qoria and Aura businesses going forward and we note that Aura had a strong Q3 in terms of ARR growth – up 31% y-o-y – and was not negatively impacted by currency like Qoria (as it reports in USD). The key, however, for the combined group will be showing/proving it can generate strong positive free cash flow when this has been the challenge individually to date.
