Date of Data Capture: 18/10/2017
Name: ACONEX LTD (ACX)
Classification: Software & IT Services
Current Price: $4.66
Market Capitalisation: $893M
Forecast EBITDA Growth: 36.67%
Yield Estimate: 0%
Consensus Price Target: $4.45
# Covering Analysts: 9
Premium at Current Price: 4.5%
Price Target Trend: Flat-Decreasing
Signal Timeframe: Monthly-Weekly-Daily
Trend Bias: Up-Down / Long-Medium
Focus: Capital Growth
Set up Notes:
• After rallying 300%+ from Jan 2015 to Jul 2016 and then falling 60%+ to Feb 2017 ACX is now showing signs of a greater recovery.
• Clearing past major linear resistance in Apr 2017, pricing has constricted sideways under dynamic resistance until breaking that today.
• Fundamental performance has led pricing up and down – and ahead we see strong growth forecast across sales, profits and earnings.
• Technical signalling is well-correlated and sees most timeframes positive or turning positive as significant resistance at $4.50 breaks.
• A minor ceiling remains at $5.00 with higher targets at $5.50, $6.60 and $8.00 and support layers down from $4.50, $4.00 and $3.75.
Growth Focus: Aconex Ltd (ACX)
Our primary focus here is capital gain, we will select our stocks from the ASX top 500 All Ordinaries Index.
The inevitable fallout from sky-high expectations can create good opportunities and we see that here with Aconex Ltd (ACX); the world’s leading cloud-based project delivery platform, as pricing emerges from a seven month consolidation and looks to be building a greater recovery.
Aconex began operations in 2000 and projected on to the ASX late in 2014 with strong earnings driving price performance as the business leader of digital management systems for large scale project collaboration. Excessively high expectations often lay the foundations for disappointment and in 2016 below estimate earnings growth led to a significant fall in price – we see good potential here for buyers as pricing grips higher and earnings forecasts firm up again. Their market-share should continue to expand domestically, with exciting opportunities in China and the US supporting strong forecasts for increasing sales, margins, earnings and profit growth over the short and medium-term.
We do recognise that current pricing is above consensus valuations but seeing as the covering analysts have been lagging the price through both ups and downs we expect aggregate estimates will follow the price higher on a rally. Even with shallow price targets the sentiment of that coverage is mostly positive to only slightly neutral, with no negative expectations. This could prove interesting with ACX one of the most heavily shorted stocks on the ASX right now and this borrowed exposure could provide a juicy squeeze should recent strength cement prices higher as we expect.
The chart history for Aconex shows an initial 300%+ rally over 21 months to peak at $8.75 by mid-2016. The exhausted rally collapsed over 60% to reach a nadir low of $2.87 by early 2017. The first signs of recovery came when pricing moved past important linear resistance in April 2017, before cycling under structural resistance layered from $4.50 to $5.00. With the $4.50 ceiling breaking this week we expect $5.00 resistance to be the next target with plenty of room for further recovery growth above and nice momentum building across our major timeframes.
ACX remains debt-free and generating good cash flow - this should continue and speed up as markets and margins mature, providing a strong framework for a greater long-term recovery built on the expected foreign and domestic infrastructure boom. Positive long-term signalling shows fresh potential for a new uptrend emerging here as momentum builds across multiple timeframes in good correlation as it looks to test overhead resistance, and we think this software-as-a-service company can easily manage it as they look to follow their blueprint for success.