1:1 Bonus Issue: Smallcap Multibagger Stock Gives 285% Returns YTD; Jefferies Raises TP To Rs 1,740

Newgen Software Technologies is among the hot stocks in the technology basket. In 2023, the stock has bolstered at sky-high levels emerging as a multibagger. There is more room for upside in Newgen. The latest to recommend Newgen shares will be global brokerage Jefferies which has raised its target price to Rs 1,740 per share owing to a strong growth outlook ahead. Newgen shares have the potential to rise by nearly 25%.

The stock is in focus for its 1:1 bonus issue for which it will turn ex-bonus in January 2024. The company has already rewarded shareholders with a 50% dividend payout in the current year.

Jefferies met Newgen's management team on the sidelines of their annual sales event this week.

Newgen Software Share Price Target:

The brokerage explained that management highlighted that the growth outlook remains strong and recent bookings offer comfort on FY24 growth. The strong growth outlook is driven primarily by India and the Middle East - its core markets - while it continues to scale up in APAC.

Also, the management continues to step up efforts to gain traction in the US, especially among the mid-large tier banks.

Further, the brokerage pointed out that Newgen's management highlighted robust demand for transformation of onboarding journeys in the MSME lending, Retail lending and trade finance segments. Average deal sizes have increased by more than 40% over the last year, driven by strong demand, more comprehensive solution offering and the ability to tap into Tier-1 Accounts.

Additionally highlighted that Newgen's gross margins could expand by 10-12ppts once they reach a topline of US$350m. However, Jefferies also added, "Management plans to re-invest most of the potential margin improvement either to scale up its marketing efforts or to invest in product development in order to accelerate growth. This should limit EBITDA margin expansion in the future. We thus expect our FY24-26 margins to remain around the 22% range."

Post the event, Jefferies said, "We are more confident in Newgen's growth outlook and raise our revenue estimates by 2-3% and our EPS estimates by 2-4%. We expect Newgen to deliver a strong 26% EPS Cagr over FY24-26E. Maintain BUY with a revised PT of Rs 1,740/share, based on 35x PE, implying a PEG of 1.3x."

Newgen Software Share Price:

On December 8th, Newgen shares ended at Rs 1,393.30 apiece, down by Rs 30.75 or 2.2% on BSE. The company's market cap is at Rs 9,762.77 crore.

Newgen's monthly upside is to the tune of 17%. While in six months, the stock has given a massive 113% on BSE. Year-to-date, the stock has skyrocketed by 284.68%. At the start of January, Newgen shares were around Rs 360.

Let's suppose, that if any investor bought Newgen shares for Rs 1 lakh at the start of January, their investment will rise to nearly Rs 3.85 lakh corpus by now. This would be a nearly four-folds jump in your portfolio.

Newgen Bonus Issue, Dividend:

The latest corporate action of Newgen is a bonus issue in the ratio of 1:1. Last month, the company's board of directors approved bonus shares in the said ratio -- which means that one new bonus share was issued for one existing share held by investors. The face value will remain the same at Rs 10 each.

The company fixed January 12 as the record date to ascertain the eligibility of Members entitled to the issuance of Bonus Shares in the proportion of 1:1.

In July, the stock turned ex-dividend for a final dividend of 50% aggregating to Rs 5 per share for FY23. Currently, its dividend yield is at 0.36%.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.