Wrkr Ltd.

MST Access - WRK Update - 07Feb24.pdf

Wrkr Ltd (WRK.AX) | Analyst: Michael Youlden

Update Report – LINK deal expands into Asia

Price: A$0.028; Valuation: A$0.079 (unchanged); Market Cap: A$36m

·  Expansion of LINK deal shows platform scalability

·  Key focus remains on initial pilot with REST Super and LINK platform build, domestically and in HK

·  Upfront investment sets up well for 1H25

LINK deal extends into HK: LINK has contracted Wrkr to deploy its platform in Hong Kong under a 3-year deal worth more than $3m initially ($1m p.a.), providing strong validation of Wrkr’s platform and a notable increase in its addressable market (beyond the already large domestic superannuation market).

REST pilot ongoing alongside LINK build: The recent LINK deal has led to an initial branded pilot with REST Super (~2m members), to use the Wrkr platform with a selection of its employers. Further platform development for LINK is also ongoing with Wrkr expecting to move from initial set-up and pilots into full production in 1Q25. This is when activity/revenue receipts should begin to pick up.

1H24 guidance update: management has provided updated guidance for revenues of $3.9m in the half (+44% pcp), slightly shy of the run rate needed to meet existing FY24 guidance of $9-10m (our forecast remains at $9.5m). We believe the group remains well positioned to realise major benefit from its initial upfront investment with LINK and REST.

Wrkr Platform the first automated digital solution: With little competition and automation of an otherwise time-consuming manual process, Wrkr Platform should enjoy a strong runway of revenue and earnings growth. Wrkr is already seeing high ARPUs from customers who have taken up Wrkr’s full solution.

LINK deal will be a step-change in revenue and reputation: LINK’s ability to provide Wrkr solutions to all of its superannuation fund customers should lead to a step change in growth. Given the magnitude of the opportunity we expect the share price to continue to re-rate as it delivers growth in revenues and profits.

Progressing toward FY25 goal to EBITDA positive: In line with our forecasts, management have outlined a performance goal of EBTIDA positivity in FY25, with a reaffirmed focus on responsible capital management, seeking to minimise dilutionary events for shareholders as the business accelerates to scale. With the Link contract now inked, and onboarding expenses set to be incurred in FY24, a material pick is expected early in FY25 to drive the transition to positive EBITDA.

Our forecasts and valuation remain unchanged. We value Wrkr at A$0.079 using a DCF on free cash flows to equity with a cost of equity of 11.5%. Key risks include: (1) Adverse changes to the regulatory environment, (eg additional taxation on >$3m superannuation account values making SMSFs less desirable), which could impact demand for its products, as well as needing to incur costs to update products to keep up with regulatory changes. (2) The emergence of additional competition, eroding its reg-tech first mover advantage for products such as Wrkr Platform, Wrkr Pay or Wrkr Ready.

MST discloses that Within the past 12 months, MST and its associates have provided and received compensation for investment banking services, including acting as Joint Lead Manager for the June 2023 capital raising for approximately A$2.75 million for Gratifii Limited. MST also receives a fee from Gratifii Limited for ongoing research coverage. Please refer to our latest research for full disclaimers and disclosures.

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Wrkr and its employees and officers do not endorse, confirm or express a view as to the accuracy of the forecasts in analyst reports, nor do they make any representation that the company's earnings will fall within the range of forecasts provided.