1. Envirosuite Limited (Recommendation: Speculative Buy, Market Cap: ~$109.75 million)

Decent Revenue Growth in H1FY21: Envirosuite Limited (ASX: EVS) is a global environmental technology company that helps different companies in managing and mitigating the environmental impacts on communities in relation to noise, vibration, odour, dust, air quality and water quality.

• For H1FY21, EVS reported revenue of $23.56 million, up from the revenue of $3.72 million in pcp. Gross margin for H1FY21 stood at 40.6%, up from 25.6% in pcp, driven by implementation of cost-out initiatives. Adjusted EBITDA loss for H1FY21 stood at $3.56 million. During Q3FY21, EVS reported record Annual Recurring Revenue (ARR) sales of $2.1 million, up 180% on the previous quarter. In May 2021, the company announced an equity raising of approximately A$14 million comprising a non-underwritten institutional placement to raise approximately $8 million and a 1-for-14.5 non-underwritten pro rata accelerated non-renounceable entitlement offer to raise approximately A$6 million (Entitlement Offer). The company has successfully completed both the components of the equity raising.
• Outlook: Looking ahead, the company is focused on utilising the proceeds from the equity raising to accelerate its investment into growing underlying sales in the EVS Omnis and Water product group. For FY21, the company expects its recurring revenue to be in the range of $48-49 million and adjusted EBITDA loss to be in the range of $5-6 million.
• Cash And Debt Scenario: As at 31 December 2020, the company had cash and cash equivalent of $9.7 million and lease liabilities and other borrowings of $4.3 million. Current ratio for H1FY21 stood at 1.61x, and debt to equity ratio for H1FY21 stood at 0.04x.

Gross Margin Trend (Source: Analysis by Kalkine Group)

SWOT Analysis:

Stock Recommendation:

• Over the last six months, the stock has corrected by 30.57% and is trading lower than the average 52-weeks price level band of $0.090 and $0.252, offering a decent opportunity for accumulation
• On a TTM basis, the stock is trading at a Price to Book multiple of 0.9x, lower than the industry median of 2.2x, suggesting that the stock might be undervalued.
• Looking ahead, the company is focused on accelerating the development and distribution of EVS Water to take advantage of the emerging water market and increase sales velocity.
• Key Risks: Foreign Exchange Risk, COVID-19 Uncertainties, Risks Related to Timing of Orders, etc.
• Considering the company’s improved performance in H1FY21, expected benefits from its new product EVS Water, recent equity raising, current trading level, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.093, up by 1.086% as on 25 June 2021.

EVS Daily Technical Chart, Data Source: REFINITIV

2. Funtastic Limited (Recommendation: Speculative Buy, Market Cap: ~$84.59 million)

Decent H1FY21 Results: Funtastic Limited (ASX: FUN) is involved in the development and marketing of outdoor sporting goods, confectionery, lifestyle products and toys. At the recently held Extraordinary General Meeting, the company passed the resolution to change the company’s name to Toys“R”Us ANZ Limited, which reflects company’s significant transformation to a digital-first retail focus.

• During H1FY21, the company completed the 100% acquisition of Mittoni Pty Ltd, Hobby Warehouse Pty Ltd and Toys R Us Licensee Pty Ltd, together referred to as the Hobby Warehouse Group. For H1FY21, the company reported total revenue of $16.25 million, up 14.9% on pcp, driven by the improved brand awareness. During the period, the company witnessed strong growth in order volumes as it total orders grew to 88k in H1FY21, compared to 59k in H1FY20. Notably, since the relaunch of Toys“R”Us Australia, the company is witnessing an increase in the number of repeat customers returning to shop for toys.
• Outlook: Looking ahead, the company expects the deployment of disciplined deployment of capital to drive top-line growth in the medium term. The company intends to increase its logistics capacity and is planning to increase the marketing spend in the second half of CY2021. The company also plans to increase Hobby Warehouse with other product categories to achieve 3-4% of the $1 billion+ market.
• Cash and Debt Scenario: As at 31 January 2021, the company had cash of $20.4 million and borrowings and lease liabilities of $3.8 million. Current ratio for H1FY21 stood at 3.35x, up from 1.42x in H1FY20. Debt to equity ratio stood at 0.07x.

Gross Margin Trend (Source: Analysis by Kalkine Group)

SWOT Analysis:

Stock Recommendation:

• Over the last six months, the stock has provided a return of 25%.
• On a TTM basis, the stock is trading at a price to book multiple of 1.4x, lower than the industry median of 2.1x, demonstrating that the stock might be undervalued.
• The company believes that its aspiration to increase the Toys“R”Us product choice and competitive price will help it in achieving 5% market share of the $2.8 billion addressable toy market.
• Key Risk: COVID-19 Uncertainties, Supply Chain Disruption, Foreign Currency Risk, etc.
• Considering the expected benefits from the recent acquisition of Hobby Warehouse Group, improved sales and active customer numbers, robust balance sheet, valuation on TTM basis and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.105, up by 4.999% as on 25 June 2021.

FUN Daily Technical Chart, Data Source: REFINITIV 

3. Prospect Resources Limited (Recommendation: Speculative Buy, Market Cap: ~$69.07 million)

Commenced Production at the Arcadia Lithium Project: Prospect Resources Limited (ASX: PSC) is a battery minerals company that owns 70% interest in the Arcadia Lithium project, located on the outskirts of Harare in Zimbabwe. 

• For H1FY21, the company reported revenue from continuing operations of $351k, up from $136k in H1FY20. Total comprehensive loss for H1FY21 stood at $4.12 million. On 25 June 2021, the company announced the completion of construction and commissioning, and the commencement of production at the Arcadia Lithium Project. As at 31 March 2021, the company had cash balance of A$4.2 million and was debt free.
• Outlook: The company is now focused on utilising the high purity petalite samples from the Pilot Plant, and spodumene samples produced in a partner laboratory, to complete respective product qualification processes. With all requisite development approvals, completed Definitive Feasibility Study and recent commissioning of Arcadia Lithium Project, the company seems well placed to cater the growing lithium demand.
• Key Metrics: Current ratio for H1FY21 stood at 11.24x, up from 2.78x in H1FY20. Cash cycle of the company has been reduced from 441 days in H1FY20 to 246.6 days in H1FY21. PSC had nil debt to equity ratio in H1FY21.

Current Ratio Trend (Source: Analysis by Kalkine Group) 

SWOT Analysis:

 

Stock Recommendation:

• The stock provided a return of 8.33% in the last three months and 44.44% in the last six months.
• On a TTM basis, the stock is trading at a price to book multiple of 2.3x, lower than the industry median of 2.7x, demonstrating that the stock might be undervalued.
• Following the commencement of production at Arcadia Pilot Plant, the company is on track to deliver technical grade petalite product to customers in June 2021.
• Key Risks: Exploration-Related Risks, Fluctuations in the Demand for Lithium, COVID-19 Uncertainties, etc.
• Considering the company’s debt free balance sheet, commencement of production at Arcadia Lithium Project, rising lithium demand, valuation on TTM basis and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.195, up by 5.405% on 25 June 2021, owing to the update regarding the commencement of production at Arcadia Pilot Plant.

PSC Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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