Guess which ASX share could rise 130%

Doubling your money with an ASX share in the space of 12 months is not something that happens too often.

But Bell Potter thinks it could be possible with the one in this article.

Though, it is likely to be only suitable for investors with a high tolerance for risk.

Which ASX share?

The share that has caught the eye of Bell Potter is Kinatico Ltd (ASX: KYP).

It is a leading provider of know your people solutions to organisations in Australia and New Zealand. Its CVCheck business currently provides employment screening and verification services to over 10,000 repeat corporate customers.

The ASX share is also focused on the development and growth of a new SaaS-based business which provides real-time workforce compliance management and monitoring via a suite of software solutions.

Bell Potter notes that the macro backdrop is weak. However, it believes there will be limited impact on earnings given management's ability to adjust its cost base. It said:

There is no change in our full year forecasts but we increase the revenue skew in FY27 to H2 given the weak macro backdrop and the likely continued lengthening of decision making and tender processes which was evident in 2HFY26. The risk is this continues into 2HFY27 as well but at this stage we assume the macro environment improves next half post a couple of likely interest rate rises this half. 

In theory this then translates into some enterprise wins for Kinatico Compliance (KC) and drives strong SaaS growth in 2HFY27. Importantly we also expect Kinatico to adjust its cost base over the course of FY27 so that there is little impact on earnings in both H1 and H2.

It then adds:

We now forecast a 1H/2H revenue split of $19.0m/$22.5m compared to $20.2m/$21.3m previously. This equates to growth of 8% in H1 and 28% in H2 and effectively assumes little if any new enterprise wins for KC in H1 but then a few reasonable wins in H2. The growth in each half is still being driven by strong double digit increases in SaaS revenue – 20% in H1 and 46% in H2 – while we continue to expect modest declines in the legacy checks revenue in both halves. 

The change in skew, however, means we now forecast SaaS revenue as a percentage of total revenue to remain flat at 62% in 1HFY27 relative to 2HFY26 but to then increase materially to 70% in 2HFY27.

Should you invest?

As I mentioned at the top, Bell Potter believes there could be significant upside on offer with this ASX share.

According to the note, the broker has retained its buy rating with a trimmed price target of 34 cents (from 36 cents).

Based on its current share price of 14.5 cents, this implies potential upside of over 130% for investors over the next 12 months.

Commenting on its recommendation, Bell Potter said:

While we are not changing our full year forecasts the increase in skew to 2HFY27 increases the risk profile so we adjust the key assumptions in our valuations accordingly. We reduce the multiple we apply in the EV/EBITDA valuation from 10x to 8x and increase the WACC we apply in the DCF from 10.6% to 11.0%. 

The net result is a 6% decrease in our TP to $0.34 which is still more than double the share price so we maintain our BUY recommendation. We note Kinatico recently announced an on-market share buy-back which is scheduled to commence on 5th October. The company has allocated up to $5m to the exercise and, to quote the company, "represents an opportunity to enhance the value of the remaining shares on issue."

The post Guess which ASX share could rise 130% appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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