AKD Securities Limited - AKD Daily (20-08-2021)

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AKD Securities Limited – AKD Daily (20-08-2021)

August 20, 2021

Karachi, August 20, 2021 (PPI-OT): Technology: Booming Startup funding – a good omen for listed Tech space

A Pakistan based startup, Airlift, has recently secured a Series B funding of US$85mn at a valuation of US$275mn, taking the total amount raised by the company to US$109.2mn while total funding raised by Pakistan based startups in CY21TD now stands at US$165mn.

The same can potentially result in re-rating of multiples for the listed Tech space where investors have only recently realized the potential of the Technology sector (Tech posted a return of 174.1% in FY21 against 35.7% for the market).

Grapevine suggests Airlift’s P/S multiple stands at 6.0-6.5x, at a mere 5-14% discount of average P/S for SYS, AVN and TRG at 6.8x, suggesting significant room for re-rating for the listed space, particularly given Airlift’s nascent operational stage versus listed Tech companies with established profitability history. The funding bodes well even for small cap companies such as TELE, which are poised for strong future growth.

While Tech sector recognition has accelerated at PSX vis-à-vis price appreciation particularly post advent of COVID, valuations continue to remain undemanding where considering US$275mn valuation for a start-up, valuations for PSX Tech bluechips stand at just US$547mn for TRG, US$518mn for SYS and just US$195mn for AVN.

Tech based funding inflow at US$165mn presents a completely contrasting picture to foreign interest in Pakistan with PSX witnessing an outflow of US$138.2mn CYTD. More prominently, listed Tech space has attracted US$20.9mn of inflow compared to outflow of US$63.3mn from traditional blue chip sectors, Bank and Oil and Gas. This clearly indicates changing investor preferences at a global level.

With Pakistan’s IT based exports reaching US$2.1bn in FY21, up 47%YoY, we believe the sector is poised to become a pivotal component of the country’s exports and as such, will continue to command investors’ attention. Re-rating or value determination as such, should continue within the Tech sector.