Engenco Limited

Undervalued at Current Juncture: Engenco Limited (ASX: EGN) has recently announced that EGN stock, as per March 2019 Quarterly Rebalance of the Ordinaries S&P Dow Jones Indices, was added to All Ordinaries, effective from March 18, 2018. The company’s revenue witnessed a rise of 12.5% in the first half and stood at $88,030,000, while in the same period of the previousyear, it was $78,227,000. The increase was because of improved sales mainly from Total Momentum and Gemco Rail segments.


1HFY19 Key Financial Metrics (Source: Company Reports)

The company is possessing decent position with regards to its key margins as its net margin stood at 7.4% at the end of December 2018 which is higher than the industry median of 5.5% demonstrating that the company has been efficiently converting its top line into the bottom when compared to the industry. Also, the company is having decent liquidity levels as is evidenced by its current ratio. At the end of December 2018, EGN’s current ratio stood at 3.46x which is higher than the industry median of 1.29x which provides confidence that the company is in a sound position to meet the short-term obligations.

What Might Drive Growth For EGN: As per the management of EGN, the company is well positioned to reap the benefits of generally positive industry environment, primarily on the back of healthy activity in Australian mining, transport, and infrastructure construction sectors. The company had done calculated deployments towards development and growth projects which includes the establishment of additional capacity in order to meet expected demand. As a result, there are anticipations that these factors would be aiding profitability moving forward.

Stock Recommendation: The stock of EGN has delivered the return of -9.28% in the span of the previous three months, while in the previous six months, it posted -20% return. However, the company is generating better returns for its shareholders than its peers as its ROE of 8.1% was above the industry median of 6.4% in 1HFY19.The group has lower than industry EV/Sales and P/BV multiple of 0.7x and 1.7x respectively as compared to the industry median of 1.2x and 2.1x, showing the stock to be undervalued. The stock is tradingslightly towards the 52-week higher level of $0.605. Hence, considering the aforesaid facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.520 per share (up 18.182% on 19 March 2019).
 

Fluence Corporation Limited

The Launch of SUBRE: Fluence Corporation Limited (ASX: FLC) had announced about commercial launch of SUBRE submerged membrane aerated biofilm reactor (MABR) solution which is available in 2 configurations i.e. as a retrofit upgrade and as new greenfield plant. A SUBRE retrofit has been designed to upgrade the existing basins with the capacities of 2,000-100,000 m³ /day (500k – 25m GPD). The release also mentioned that SUBRE greenfield solution happens to be custom-built according to specifications of the customer without extensive infrastructure, with a small footprint as well as energy requirements, and in the challenging or remote locations. The company’s consolidated revenue for the year ended December 2018 amounted to US$101.87 million while, in the same period of the previous year, it was US$33 million. The company’s key margins have improved in FY 2018 on a YoY basis.


FY18 Income Statement (Source: Company Reports)

What Might Drive Growth for FLC: The management of FLC is optimistic about the expected performance and stated that the company happens to be diversified in terms of geography, industry and technology. The company’s future growth performance would be supported by the leading range of Smart Products Solutions, growing backlog with regards to recurring revenue, and technical expertise. The company stated that a robust pipeline of sales in all the regions of the world and completion of existing project milestones helps FLC’s growth objectives for FY 2019.

Stock Recommendation: From the past few months, the stock of FLC had delivered decent returns as, in the past three months, the company’s stock delivered the return of 13.43%. Also, the company is possessing a strengthened balance sheet in order to help the next growth phase. From the valuations perspective, the company’s EV/Sales ratio stood at 0.9x (TTM basis) which is lower than the industry median (Industrials) of 1.0x which hints that the company is undervalued.  Hence, on the backdrop of the aforesaid factors, we maintain our “Speculative Buy” recommendation on the stock at the current market price of A$0.395 per share (up 3.947% on March 19, 2019).
 

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