Legend Corporation Limited

A significant decrease in operating cash flow Y-o-Y: The Directors of Legend Corporation Limited(ASX: LGD) advised that EBITDA for the six months ending 31 December 2018 are expected to be in the range of $7.3 to $7.6 million which implies an increase by 32.0%-37.0% on the prior corresponding period.Net Profit after Tax is expected to be in the range of $3.6 to $3.8 million. The reported revenue from ordinary activities grew by 14.7% Y-o-Y to ~$114.9 million in FY18 compared to ~$100.2 million in FY17 driven by the increase in construction activity along with power infrastructure and network investment which has resulted in improved sales of products in these sectors.  Net Profit after Tax was $5.978 million, up by 59.8% on the prior year due to the improved trading through Electrical, Power and Infrastructure division.

Overhead expenses were up $2.5 million or 7.0% primarily as a result of the acquired activities of the Celemetrix Group. FY18 operating cash flow was down 38% on last year to $6.5 million due to a combination of strong trading in May and June increasing debtors at year-end along with an accumulation of inventory towards year end to satisfy expected demand early in the new financial year. The company’s current ratio in FY 2018 was 1.99x which implies a YoY fall of 18.4%.
 

FY18 Financial Summary (Source: Company report)

What to Expect from LGD Moving Forward: In FY19, the company expects to see earnings grow as cost increases are passed on to the market and key supplier performance returns to normal. The outlook for FY19 is for continued growth in the existing businesses driven by new products, initiatives and accretive growth through acquisitions.

Recently, EGP Capital Pty Ltd became a substantial holder of the group since December 12, 2018 with 5.18% of voting power.Meanwhile, the stock has fallen 3.13% over the past one month but up 3.33% in the past five days (as at 13 February 2019). Considering the stock volatility and mixed financial performance in FY18, we have a wait and watch stance on the stock at the current market price of $0.305 per share (down 1.613% on 14 February 2019).
 

Fluence Corporation Limited

US$1.7 million contracts received- support top-line growth: Fluence Corporation Limited (ASX: FLC) announced that independent testing on Stanford, California demonstration plant remained successful. The results demonstrate the compliance of MABR technology with California Title 22 water recycling legislation.  The release stated that FLC’s MABR demonstration plant has been installed at CR2C or Codiga Resource Recovery Center in Stanford, California.  Two benchmarks are used to evaluate the Fluence MABR demonstration unit’s treatment performance namely: California Title 22 standards for non-potable water reuse (T22) and Total Nitrogen limit of 10 mg-N/L.

Moreover, the company got a contract of US$1.7 million for supplying its smart product solutions to a reputed beverage producer.The solution consists of first Aspiral™ wastewater system, which features FLC’s unique MABR technology, and which will be deployed in Latin America. In our view, this will support to drive the top-line growth of the company in years to come.

 
Business growth trends (Source: Company report)

The company displayed strong growth in Q4 FY2018 and year on year. There was a record quarterly revenue in Q4 FY2018 of US$43.7 million, up by 73% on Q4 FY2017 and the FY2018 revenue is up by 82% to US$105.6 million.The Q4 FY 2018 revenues were mainly helped by NIROBOX™ sale to-date in Egypt of US$7.6 million and US$8.4 million NIROBOX™ Seawater & installation for Peru Build-Own-Operate-Transfer (BOOT) project.

What to Expect From FLC: The future growth of the company in recurring revenue is supported by a US$50 million project finance facility. Moreover, the guidance was reaffirmed for sustainable EBITDA profitability by Q4 2019 based on continued strong growth in sales of Smart Products Solutions.

Even though the company witnessed the recent contract award and also encountered strong quarterly growth in revenue and gross profits, its stock has posted the return of -12% in the previous three months as on February 13, 2019. As a result, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.330 per share.
 

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