Appen shares still an attractive acquisition target: Citi

Man drawing illustration of a big fish eating a little fish representing a takeover or acquisition.

Man drawing illustration of a big fish eating a little fish representing a takeover or acquisition.

The Appen Ltd (ASX: APX) share price has continued to be sold down by investors this week.

On Monday, the artificial intelligence data services company’s shares reached a new multi-year low of $6.08.

This was driven by weakness in the tech sector, its eviction from the ASX 200 index, and a broker note out of Citi.

What is Citi saying about the Appen share price?

On Monday, Appen lost one of its only remaining bulls when Citi downgraded its shares to a neutral rating and slashed their price target on them by 28% to $6.60.

The broker made the move in response to the company’s weaker than expected start to FY 2022. It notes that this “weakness was primarily due to one customer.” Citi believes that customer is likely to be Facebook based on its analysis.

In light of this poor start to FY 2022, the broker notes that Appen will need to have a very strong second half to have any chance of achieving its full year earnings guidance. This is something which Citi isn’t overly confident will materialise.

What about the takeover?

Citi also notes that Appen recently received a takeover approach from Telus International that was swiftly withdrawn once the details were made public.

While disappointing for short term shareholders, the broker suspects that it may not be the end of the story.

Citi highlights that Appen’s takeover approach demonstrates that demand for human labelled artificial intelligence training data still exists. And given its strong market position and share price collapse since 2020, it remains an attractive takeover target for a bigger player.

The Appen share price is having a better day on Tuesday. In early trade, the company’s shares are trading slightly higher at $6.23.

The post Appen shares still an attractive acquisition target: Citi appeared first on The Motley Fool Australia.

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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 positions in and has recommended Appen Ltd. 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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