Collaborate Corporation Limited (ASX:CL8)

May 22, 2017 | Price: $0.043

Entering the Next Stage of Growth

Overview: Collaborate Corporation Limited (“Collaborate”, “the Company”) is an Australian technology company operating in the sharing economy enabling the peer-to-peer rental of assets. The Company’s primary asset is Intellectual Property (“IP”) surrounding a peer-to-peer sharing and identity verification platform, which can be utilised for multiple industry verticals. Collaborate’s most advanced asset is DriveMyCar, a peer-to-peer marketplace that allows car owners to rent vehicles to third parties. Since we initiated coverage in April 2017, the Company received a $1m strategic investment from the Royal Automobile Club of Victoria (‘RACV’), raised $3.5m via the exercise of 100% of CL8O Options, and posted record results in April. Our last advice was a  ‘spec buy’ recommendation on 6 April 2017 at a price of $0.024.

Catalysts: Collaborate’s funding position has significantly improved following the exercise of its April 2017 options tranche and a $1m strategic investment from RACV. The strategic investment at a premium to market is a validation of management’s strategy and provides a new channel partner to leverage Collaborate’s IP into a new market. Continuation of the company’s organic growth trajectory whilst further capitalising on the growing number of strategic partnerships is a value driver. The launch of Mobilise in Q3CY17 offers an additional driver for growth.

Hurdles: Collaborate and its subsidiaries are not currently cash flow positive and there is no guarantee they will become self-funding despite its significantly improved funding position. We believe the company has a competitive edge, however, Collaborate may be subject to increasing competition from new entrants to the marketplace. There is a risk that growth across its platforms may slow down which may impact the company’s financial performance.

Investment View: Collaborate offers speculative exposure to demand peer-to-peer sharing. We are attracted to the Company’s improved funding position and growing pipeline of strategic partnerships. The investment from RACV is a validation of Collaborate’s business strategy and it opens the door to a new market of significant size. Primary hurdles include competition and the company’s need to deliver ongoing growth in order to reach a self-funding position. We believe that Collaborate’s improved funding position will enable management to drive demand for all of its platforms whilst leveraging new and existing channel partnerships. Seeking to monitor organic growth and the upcoming launch of the Mobilise business, we maintain coverage and reiterate our valuation of 6 cents/share, which represents a ~40% premium to a recent trade.

THE BULLS AND THE BEARS

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THE BULLS SAY

  • Collaborate is experiencing strong organic growth and a growing number of strategic partnerships should further support the company’s growth trajectory
  • The $1m strategic investment from the Royal Automobile Club of Victoria (‘RACV’) at a premium to market is a validation of management’s strategy and provides a new channel partner to leverage Collaborate’s IP
  • 100% of CL8O Options with expiry 30 April 2017 were exercised which is a sign of confidence and it provides the company with sufficient capital for the foreseeable future
  • The upcoming launch of Mobilise could be a driver for growth if successfully executed
  • Our valuation represents a substantial premium to recent
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THE BEARS SAY

  • The company is contingent on further growth in order to reach a self-funding position and there is a risk that growth may slow down
  • We believe the company has a competitive edge, however, Collaborate may be subject to increasing competition from new entrants to the
  • Even though the company’s funding position has been significantly improved there is no guarantee that Collaborate’s reliance on external capital has been entirely eliminated
  • There is no guarantee that the investment in Mobilise will yield a return on shareholder funds
  • The valuation is contingent on a significant degree of inventory and transaction growth, which is not assured
Disclaimer

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its reports. As a result, investors should be aware that the S3 Consortium may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making any investment decision. The publishers of this report also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this report.

Publishers Notice

The information contained in this report is current at the finalised date. The information contained in this report is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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