Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Appen (APX) | Technology Day highlights huge opportunity

Huge growth opportunity: APX recently hosted a virtual Technology Day which covered (1) the underlying drivers of their business, (2) practical demonstrations of their technology platform, and (3) a brief overview of their position in the wider industry. We came away with a renewed appreciation of the strong growth potential and huge opportunity available to the company.

AI models dependent on training data: AI models are increasingly prevalent in apps used by consumers and businesses, with new use cases being developed constantly. These models are only as good as the data used to train them and more data is better. In addition, existing AI models need to be kept up to date (c.34% of models need to be updated monthly according to McKinsey), all of which means the demand for quality training data is growing rapidly.

Appen a global leader: Management was confident that double-digit growth will continue for many years to come and that the combination of APX’s size (as one of the two largest in the market, with over 1m crowd workers) and technological advantage (amongst the market leaders) will give it a clear competitive advantage. This is based on the facts that (1) having more data improves their internal machine learning, which increases processing efficiency and quality, which becomes a virtuous circle; and (2) processing scale, quality and speed are increasingly important parameters for large customers.

Internal technology key: APX demonstrated its Annotation Tools for LIDAR and photographic images of road scenes, intended for use to train autonomous vehicle AI; the process is 140% faster using technology when compared with human input alone. APX is also investing in its Crowd Management and Client Workspace platforms to improve efficiency and expand its addressable market.

Investment view: With a recent re-affirmation of FY20 guidance, we believe APX’s operations are unlikely to be materially affected by COVID-19. APX boasts (1) a robust financial position, (2) large and rapidly growing global customers, and (3) positive industry dynamics, and we believe APX is well placed to continue its strong growth. We have upgraded our valuation and 12-month target price to $34.49 (from $30.44). BUY maintained.

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