Ann: 9 Spokes Video Interview-9SP.AX, page-10

Foster note from this morning.

25 July 2016

9 Spokes (9SP, $0.13, Mkt Cap $52m) - The Global App Store for SMEs, Targeting the Holy Grail of "Big Data" Analytics – BUY – PT $0.47.


Event:

• We initiate coverage on 9 Spokes International Ltd (9SP), with a BUY recommendation and price target of $0.47/share.

Investment Highlights:

• 9SP recently listed on the ASX via an IPO, raising $25m. The company recommends the world’s best cloud-based business software applications for SMEs and integrates them into a smart dashboard, revealing key information on the performance of SME operations.
• An app store for global SMEs.  The platform provides scalability, significant operating leverage and a quicker path to profitability, through multiple channels, globally.
• With a c.20% revenue margin on apps, the platform enables an uplift to revenue for minimal (if any) incremental cost.  Today, most SMEs utilise 3 cloud based apps, anticipated to increase to 7 in coming years.
• 9SP has signed major channel partners including Barclays, Deloitte and Suncorp (all live from Q316E with $325k in minimum monthly revenue).  In Barclays alone, if a 20% margin on 7 cloud based apps were to be achieved for up to 420k SME clients, this would represent c.$210m revenue opportunity.
• Big data analytics: 9SP provides a description of an SME on a “live” basis.   Non-sensitive client data from the apps can be consolidated to form benchmarking data, displayed through widgets on the dashboard.  Once a ‘tipping point’ is reached, 9SP has effectively built a ‘real time’ tool for an SME, with extremely localized or global data, based on characteristics, on a second-by-second basis (i.e. weather impacts on sales locally).

Recommendation:

• We initiate on 9SP with a BUY recommendation and 12-month price target of $0.47/share.  Our valuation is based on the low-end of the range for all contracts, except Barclays.  With Barclays, we have modelled a 10% penetration of installed SME client base, utilizing 3 apps generating $0.30/per share.  This valuation methodology is conservative given it does not assign any value to new contracts or its direct channel, 9spokes.com.
• Well-funded post recent IPO: 9SP has a clear runway to attack the market opportunity with a net cash position of $25m & yet 30% cheaper due to market volatility.  This creates an opportunity for savvy investors.
• Catalysts for the share price include: Catalysts for the stock includes: 1) end-user customer adoption, 2) additional channels in existing jurisdictions; and 3) additional channels in new