Diligent shares surge after broker upgrades rating, saying 34% fall ‘overcooked’

Shares in New York-based Diligent jump 11% to $6, making it the best performer on the New Zealand stock exchange today.

Shares in Diligent Board Member Services, the governance app maker hit by a slew of administrative mis-steps, surged after brokerage Craigs Investment Partners upgraded its recommendation to 'buy' from 'hold', saying a slump in the share price was overdone.

Shares in New York-based Diligent jumped 11 percent to $6, making it the best performer on the New Zealand stock exchange today.

The shares have slumped following a series of accounting errors by the company, which said on Tuesday it would have to restate how it recognised revenue over the past three financial years, delaying publication of second-quarter trading.

"While the recent corporate governance oversights and revenue recognition errors are deeply disappointing, we believe the 34 percent sell off in Diligent's share price since late June is overcooked and provides investors with an attractive opportunity to buy into a fast growing business with a clear market leadership position and attractive, scalable business model at a discounted price," Craigs research analyst Stephen Ridgewell says in an August 7 report.

"At present, Diligent appears to be trading at a 20-30 percent discount to both our discounted cash flow and peer multiples." 

Underpinning the company's earnings, its Boardbooks product has a 97 percent retention rate and its profit margins are likely to continue to increase as it reaches scale, Mr Ridgewell says. The company will need to develop new products to maintain growth and has indicated that several products are under development.

The brokerage lowered its 12-month price target for the stock to $7.20 from $8, citing a 20 cent discount to reflect risks surrounding its restatement and a more conservative view on margins in later years.

(BusinessDesk)