Etherstack Plc

ESK Details

New Contracts to Boost Revenue: Etherstack Plc (ASX: ESK) is an IT company specialising in wireless communication technology, primarily engaged in designing, developing, licensing mission-critical radio technologies, and deploying wireless communication software and products. The market capitalisation of the company as of 27 May 2020 stood at $73.49 million. As per a recent announcement, the company has entered into two contracts with the Commonwealth of Australia represented by the Department of Home Affairs and the UK Ministry of Defence for technology and services, which collectively will contribute revenue of ~US$700,000 to the current financial year ending 31 December 2021.

FY20 Financial Results Update: During the period, the company has posted a positive net operating cash inflow of US $1.7 million, compared to the US $1.4 million in FY19. ESK has reported a decline in EBITDA by 1.2% to $1.1 million in FY20, compared to the previous year. The company has recorded a decrease in revenue by 1.9% to $4.7 million in FY20, compared to $4.8 million in FY19 mainly due to variations in project timing during the second half of the year. Moreover, the company has gained in underlying statutory NPAT by 109% to US$83,000 in FY20, compared to a loss of ~US$871,000 in FY19.

FY20 P&L Statement (Source: Company Reports)

Outlook: The management is expecting to collect revenue of US$3.5 million to US$4.0 million, an increase of 46% to 66% in H1FY21, compared to H1FY20. The company has reaffirmed its FY21 guidance recurring revenue growth from infrastructure projects in Australia and Canada. The company has also received a follow-on order from RCS Telecommunications Pty Ltd and provide Auria’s P25 digital radio network technology to its customer. ESK expects to earn a revenue of $600,000 from the order.

Key Risk: Due to COVID-19, the government spending towards defence, timely delivery of projects and getting new orders got adversely affected in the second half of the year 2020.

Stock Recommendation: The management expects further revenue cushion in H1FY21 depending on the successful completion of advanced negotiations. The stock of ESK is trading below its average 52-weeks’ levels of $0.120-$3.700. The stock of ESK gave a positive return of ~32.63% in the past one week and a negative return of ~3.07% in the past six months. On a technical analysis front, the stock of ESK has a support level of ~$0.523 and a resistance level of ~$0.71.  Considering the current trading levels, positive underlying NPAT, optimistic outlook and the projects in pipeline, we recommend a ‘Hold’ rating on the stock at the current market price of $0.640, up by 13.274% as on 27 May 2021. The stock witnessed a surge in price because of the recent news of signing new contracts.

ESK Daily Technical Chart, Data Source: REFINITIV 

Compumedics Limited

CMP Details

Business Update: Compumedics Limited (ASX: CMP) is a medical device & research-driven company engaged in developing, manufacturing, and commercialising diagnostics technology for sleep, brain, and ultrasonic blood-flow monitoring devices. The market capitalisation of the company as of 27 May 2021 stood at $70.86 million. As per a recent update, the company has announced the second phase of MEG installation at US-based Barrow Neurological Institute (BNI) is planned in FY21 or early FY22. 

H1FY21 Financial Performance: During the period, the company has reported revenue of $18 million, compared to $18 million in H1FY20 mainly due to delays to ship some new sales orders owing to the COVID-19 pandemic. CMP has recorded a surge in EBITDA margin by ~58% to $1.9 million in H1FY21, compared to $1.2 million in H1FY20. Additionally, the company saw a rise in NPAT by 550% to $1.3 million during the period, compared to $0.2 million in H1FY20. The cash position of the company stood at $5.6 million as of 31 December 2020. 

H1FY21 Key Financial Performance (Source: Company Reports)

Outlook: The company expects to deliver increased revenue and underlying earnings when compared to FY20. New product launch and strategic expansion in the global market will further provide the company with significant leeway in taking growth opportunity going forward. Moreover, the company is expecting an upsurge in USA Clinical Sales to USD 9.0 million in FY22.

Key Risk: Due to COVID-19, there is a delay in the second phase of the MEG installation. The company could not deliver the order on time due to logistic issues and still uncertain prevails. 

Stock Recommendation:  The company continues to invest in innovations and the development of new products, which pursue new opportunities for MEG and Somfit. The stock of CMP is trading below its average 52-weeks' levels of $0.360-$0.580. The stock of CMP gave a negative return of ~12.22% in the past one month and a negative return of ~24.03% in the past six months. On a TTM basis, the stock of CMP is trading at an EV/Sales multiple of 2.0x, lower than the industry median (Healthcare Equipment & Supplies) of 13.1x. Considering the current trading levels and valuation on a TTM basis, improved bottom line performance, optimism in clinic sales force, funding on innovation and key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.395, down by ~1.251% as on 27 May 2021.   

CMP Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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