Wellnex Life Limited

WNX Details

Trading Update for July and August 2021: Wellnex Life Limited (ASX: WNX) is involved in distributing and selling health and wellness products. On 7 September 2021, WNX reported an increase of 49% YoY in revenue for the month of July and August 2021.  

• WNX received $1 million of an initial purchase order for its new Wagner Liquigesic brand (Liquid Paracetamol Soft Gel Capsule) and will launch the brand in October 2021.
• The company obtained orders for Wakey Wakey and The Iron Company brands and will launch these products with pharmaceutical and grocery retailers such as Coles, Terry White, etc.

FY21 Key Takeaways:

• Acquisition of BSA: WNX acquired Brand Solutions Australia (BSA) on 1 July 2021, an established distribution firm and expanded its portfolio to more than 15 brands. With the addition of BSA, WNX has an annualised revenue of ~$20 million.
• Recapitalised Balance Sheet: The company sold its Corio Bay Dairy Group (CBDG) Asset for $13.5 million and further enhanced liquidity by converting $5.6 million of shareholders’ loans to equity post 30 June 2021. WNX also raised ~$2.1 million capital via a rights issue in July 2021. 
• Reduced Cash Loss from Operations: The net cash used in operations was reduced by 41.3% YoY to $4.45 million, due to the business restructuring and financial prudence program in FY21.
• Cash & Cash Equivalents: The company held $7.75 million of cash and cash equivalents as of 30 June 2021 compared to $1.11 million as of 30 June 2020.

Revenue & Net Loss from FY20 to FY21; (Analysis by Kalkine Group)

Key Risks: The company needs adequate and timely funding for growth initiatives and working capital. WNX also risks the launch of new products and synergies as it expands the portfolio via acquisitions.

Outlook:

• WNX expects to deliver higher revenue in FY22 than $18.3 million in FY21 and above the budgeted revenue ($21 million) for FY22. This expectation is due to robust sales growth in the current product lines and the new range of products and brands in FY22.
• WNX is completing plans for the launch of the Mark Wahlberg and Tom Dowd Performance Inspired brands.
• WNX will continue to exercise a prudent capital management policy in FY22.

Stock Recommendation: The stock of WNX gave a negative return of 19.23% in the past month and a negative return of 79.03% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.099 - $0.170. On a TTM basis, the stock of WNX is trading at a price to book value multiple of 32.2x, lower than the industry (Consumer Non-Cyclicals) average of 69.9x, thus seems undervalued. Considering the current trading levels, expanded portfolio via BSA and Pharma Solutions Australia acquisitions, revenue growth estimated & launch of new brands in FY22, valuation, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.105, down by 4.546%, as on 21 September 2021.

WNX Daily Technical Chart, Data Source: REFINITIV 

Carbon Revolution Limited

CBR Details

FY21 Financial Performance: Carbon Revolution Limited (ASX: CBR) is manufacturing and selling carbon fibre wheels. It is also engaged in R&D activities related to carbon fibre wheel technology.

• Wheels Sales Declined: In FY21, CBR reported an 8.6% decline in wheels sales to 12,749 units, due to COVID-19 related challenges affecting the timing of new program launches. Consequently, revenue declined by 10.3% and stood at $34.9 million.
• Sales Impact on Bottom-Line Flow: Adjusted EBITDA declined by 9.2% and stood at a loss of $17.2 million. Gross loss stood at $14.3 million, relative to $11.6 million loss in FY20; significantly driven by additional finishing costs and reduced production volume in H1FY21, partly offset by a recovery in H2FY21.
• Improved Operating Cash Flow: The cash outflow from operating activities declined to $9.3 million, relative to $30.9 million, representing a 70% YoY improvement, owing to prudent working capital management and improvements in work in progress and raw materials inventory levels.

Source: Company Report, Analysis by Kalkine Group

Key Risks and Challenges: The shortage of global semiconductor chips may pose a significant issue in production processes. CBR has showcased subdued bottom-line performance in the past; hence a turnaround system is required. Moreover, COVID-19 pandemic uncertainties pose significant risks to the auto sector from both the manufacturing and demand-side.

Outlook: Although yet not profitable, CBR has shown considerable growth in operational efficiency in H2FY21. The company reported reduced COGS in H2FY21, primarily driven by stabilizing sales and production volume. The Mega-line project, completing a $95 million equity raise, holds significant potential to boost manufacturing activities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of its NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of CBR gave a negative return of ~50.582% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.960 - $3.048. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight premium to its peers’ average, considering improved operational efficiency and potential for achieving economies of scale. For valuation, few peers like GUD Holdings Ltd (ASX: GUD), ARB Corp Ltd (ASX: ARB), PWR Holdings Ltd (ASX: PWR) have been considered. Considering the improved operational efficiency, the improved potential for the auto sector, mega-line developments, current technical levels, valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the market price of $1.115, as of 21 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

CBR 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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