Stockbroker Ord Minnett has raised its target price on Straker Translations (ASX:STG) pointing to recent partnerships the translation software company has forged with major players, including IBM, as well as the growth opportunities M&A activity is driving in the sector.
Senior equities analyst, Luke Macnab, placed a Buy rating on Straker raising its price target to $2.10, a 45 per cent premium on the recent close price of $1.45.
In a research note, Macnab said Straker is well-positioned for growth thanks to the impact of COVID-19 on translation projects in 2020.
Straker saw a 50 per cent jump in its share price in 2020 after announcing an expanded deal with IBM, increasing the company’s exposure to a number of new partners and growing its presence in the US.
Following this, Straker acquired US-based Lingotek, its eighth acquisition in five years, which opened the doors to customers and partners including Oracle, Nike and Acquia.
Macnab said M&A was a huge driver of growth in the translations industry and, as more companies look to streamline their contracts, Straker is well-positioned to take advantage of this changing behaviour and expand its partnerships with businesses like IBM.
The full impact of the IBM deal, which began to roll out in January, won’t be seen on Straker’s books until later in the year and into 2022, but Macnab predicts the worth of the deal will sit around NZ$14 million per annum when completed.
Ord Minnett also tipped Straker to double its revenue from $31.4 million in FY21 to $61.7 million in FY23 and hit a positive operating cash flow of $2.7 million in FY23. Ord Minnett updated the forecasts to incorporate slower growth in FY21 and additional investment in growth capacity in FY22.
Straker reactivated its M&A program in late 2020 and Macnab believes Straker is in a better position to accelerate its growth plans compared to smaller companies in the space that will struggle to recover from the economic impacts of the pandemic.
“We believe there are likely to be more material enterprise wins going forward, driving higher organic revenue growth, as more enterprise customers consolidate their translation providers to those with the scale and technology to service them globally,” said Macnab.
“Acquisitions like Lingotek will increase STG’s appeal to this customer cohort, with advanced technology, increased scale and increased global footprint.”