After being subjected to a short-seller report back in 2016, Silverlake Axis Ltd (SLA) has fallen almost four times off its highs of $1.20 in 2015. With a current price of $0.30, it now has a similar price level when the stock first IPOed back in 2003.
I believe that this company is gaining more traction lately as it is being frequently mentioned in mainstream media and various social media platforms.
Is the worst over for SLA and could this be the reversal we’ve all been waiting for? Let’s find out.
TLDR : What is SLA and what do they do?
Silverlake Axis is the market leader in core banking software in ASEAN where it deploys its proprietary software to major organisations in banking, insurance, payments, retail, and logistics industries. It is also an Insurtech market leader in providing collaborative and information exchange platforms for the insurance industry.
DBS Treasures Private Client
I’m no banking software expert but I’ve gathered that once a bank decides on a particular software to use, it becomes very much reliant on it. I daresay that most banks have an ‘If it ain’t broke, don’t fix it‘ mindset when it comes to their IT system. This may be true in the case of SLA as they stated in their recent Q4FY21 presentation that they were able to retain some of their earliest customers who they said: “continued to grow with us over the past 30 years.”
I find their revenue model robust because they provide a range of solutions, which includes both B2B and B2C.
Anonymous short seller report … wiped out 50% of share price
If you held on to Silverlake Axis shares from its IPO in 2003 right up to its all-time highs in 2015, you would probably have had a “Goldlake” share by then. This is because not only did the stock run up almost four times, the dividends collected from 2013-2015 would have also yielded 40% of your initial capital! (2013: 10.97%, 2014: 14.52%, 2015: 12.90%).
But their “golden” days came to a grinding halt with the release of an anonymous short-seller report in 2015. It was titled “The Unbelievable Financial Alchemy of Silverlake Axis” and was released on the 20th of August 2015 by Razor99. This report revealed a number of issues with SLA, most of which were red flags for investors.
The report ultimately concluded that the stock could be worthless and within the next 3 trading days, the stock fell from $0.80 to a low of $0.35, before stabilizing at the psychological price point of $0.50.
The findings of an independent probe headed by Deloitte refuted “short-seller’s allegations against Silverlake Axis“. While this did give SLA a much-needed closure, the damage had already been done and this could be the cause for the stock’s persistent downward trend until now.
While I’m not here to judge the credibility of the report, my opinion is that its only saving grace is there is a “reason” for the decline and it can be quantified.
In the case of my previous article Dairy Farm International, I was not able to give statistical edvidence as to why the share price was falling and how the company was losing market share. There was just not sufficient data for me to quantify the “loss of market share”.
Authors Opinion
Silverlake Axis in 2021 – potential recovery in sight?
At present, I can’t help but feel that things could be turning around for SLA and I deduced this based on the following reasons:
1. Strong Catalyst for the company moving foward
The allegations mean less to me when compared to what SLA actually did after the report was released. Any company can refute allegations thrown at them, but what I like about SLA is how they still went about business as usual. They even went beyond their business, and it is apparent that their efforts have produced results as the company recently secured new deals.
2. Analyst Upgrades by CIMB & DBS this year
Early this year, DBS Research provided analyst coverage on SLA. The recommendation was increased to BUY with a TP of $0.38. The bullishness was attributed largely to the current order of their books and the number of contracts in their pipeline.
CIMB followed soon after by reiterating “ADD” on SLA with a TP of $0.37. This was largely due to how the management hinted at a decrease in spending from prospects in 2021, which is expected to become clearer in 2022 as prospects resume project negotiations.
While the target prices set by analysts may not always be of huge significance, having more positive coverage is always better than having none. In this case, I do believe that the recent upgrades have added to the momentum of the price action.
Short-term uptrend is intact but for how long?
In the past 3 months, the price action of SLA (on the weekly candlesticks) has indeed been gaining momentum as we see the prices form a series of higher highs and higher lows. To me, the volume spikes also indicate that we have a good amount of buyers coming in which can also support the argument for a bullish reversal.
To further support the fact that this may indeed be the much-awaited bullish reversal, we are seeing a golden cross appear on the daily candlesticks. This is the point where the 50 Day Moving average breaks above the 200 Day Moving average. This is commonly acknowledged by many investors and algorithmic trading “bots” as a signal to go long on a stock.
However, on a bearish note, if we zoom out a little and observe the price action of SLA since its IPO, we can see that the downward trend is still indeed very much intact. The bullish momentum in the short-term doesn’t seem as significant when we look at the trend on a longer-term horizon.
Furthermore, it is not uncommon for this stock to find momentum at the $0.25 support level when historically, small short-term rallies (good and bad) have been observed at this price point (Indicated in orange below).
Seems legit this time…but take caution as always
Personally, I have taken a very small nibble in this company at the time when the volume spikes happened. However, this is by no means financial advice to long or short the stock. Based on the consistent fundamentals and improving order flow, it does seem like there may be some substance to the reversal.
There have been reports that Ikhlas Capital has invested in SLA, but SLA clarified that no investment has been made. This seems strange enough, but I can’t help but feel that something is brewing, especially if you look into the board at Ikhlas.