NetSol technologies, Inc. (NTWK) stock prices were up by a marginal 0.74% as of the market closing on May 11th, 2021, bringing the price per share up to USD$4.11 at the end of the trading day.
Renewal of Existing Contract
The company announced on April 27th, 2021 that it had signed a multi-millior dollar renewal of an existing agreement. The current tier-one Japanese automotive customer in Thailand will continue to license certain key components of NETSOL’s NFS Retail platform as per the renewed contract. This includes NTWK’s proprietary NFS Credit Application Processing System (CAP) and NFS Contract Management System (CMS).
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Working Relationship with Customer
Given how the customer has a promising track record of being a frontrunner in the financing and leasing of commercial vehicles and pickup trucks space in Thailand, NTWK is keen to further develop its working relationship for the long term. Historically, NTWK has facilitated the provision of clear value and quality for the customer’s operations, making use of both the CAP and CMS components of the NFS Retail platform. The renewal of the contract also consolidates NTWK’s standing in Thailand and the Asia-Pacific market as the preferred business partner for auto captives and finance and leasing companies in the region.
Promising Balance Sheet
In their last reported balance sheet, NetSol Technologies indicated liabilities due within 12 month to be USD$21.7 million whereas liabilities due beyond 12 months were reported to be USD$2.52 million. Given how NTWK managed to offset these obligations with reports of cash reserves of USD$32 million in conjunction with USD$18.6 million in receivables due within 12 months, the company can boast USD$26.4 million more liquid assets than its total liabilities.
Safe Debt
The highly promising surplus liquidity suggests a very strong balance sheet, indicating that NTWK has the resources to leverage its debt safely. Low debt ratios have proven to be a lifeline for the company as it experienced a decrease in EBIT by 42% over the course of the previous 12 months.
Prospective Liquidity Position
Despite having strong reports of net cash on their balance sheet, the company can only pay off debt with actual cash, not accounting profits. To this end, NTWK will still have to manage how it converts its earnings before interest and tax to free cash flow, strongly impacting both their need for and capacity to manage debt. Consolidating investor confidence, NTWK has reported a higher ratio of free cash flow as compared to EBIT over the prior 3 years.
Future Outlook for NTWK
With a strong balance sheet in conjunction with the large-scale contract renewal, NTWK is poised to continue its upward trajectory of success and growth. Current and potential investors look to the company to leverage the resources at its disposal to usher in significant and sustained increases in shareholder value.
