Overview: XTD Limited (“XTD”, “the Company”) is an Australian technology company focused on digital advertising. XTD owns a digital media and information system suitable for transit networks in major global cities. XTD has currently 32 XTD screens operating in the Melbourne metro network and 13 installed in Brisbane, which is fully functional. XTD Limited, formerly Lunalite International Pty Ltd, listed on the ASX via a reverse takeover of White Eagle Resources Ltd in December 2014.
Catalysts: XTD is witnessing strong revenue growth. The partnership with APN Outdoor has resulted in seven-year contracts with domestic railway networks, which provide the Company with stable, recurring revenue streams. Along with horizontal growth in the domestic market, management also targets expansion into south-east Asian and US rail networks. The Company has undrawn debt facilities of $4m in place.
Hurdles: Despite strong revenue growth, XTD is not yet profitable and its reliance on external capital has not been entirely eliminated. The capital structure is relatively fragmented and may leave the Company exposed to takeovers below fair value. XTD is currently a pioneer in the industry, but as entry barriers are limited to ‘know-how’, the Company could become subject to increasing competition.
Investment View: XTD offers transitional exposure to the digital media and transport advertising market. Historic revenue growth and existing contracts are attractive qualities, while undrawn debt facilities provide financial flexibility. Working capital requirements to fund growth initiatives is a principal risk. Securing new domestic contracts and successfully expanding internationally are potential value drivers. Recognising XTD’s growth potential we are initiating coverage with a ‘speculative buy’ recommendation.
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