Emeco Holdings Limited

EHL Details

Key Takeaways of FY21: Emeco Holdings Limited (ASX: EHL) offers complementary open cut and mining equipment, technical and engineering services, repair, and maintenance services.

• The operating revenue improved from ~$620.5 million in FY21 to ~$540.4 million in FY20. The revenue contribution from the recently acquired Pit N Portal business increased from ~$35.3 million in FY20 to ~$141.0 million in FY21 well aided by the addition of new projects.
• The net operating cashflows increased from ~$181.97 million in FY20 to ~$205.61 million in FY21.
• The total interest-bearing liabilities were reduced from ~$620.01 million as of 30 June 2020 to ~$299.21 million as of 30 June 2021.
• The company held cash and cash equivalents of ~$74.72 million as of 30 June 2021 due to the repayment of the RCF debt facility and notes.

Key Financials from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the impact of COVID-19 on its rental segment revenue, tight labour market conditions, operating fleet utilisation, and reduced coal prices. 

Outlook:

• EHL expects the operating EBITDA for 1HFY22 between ~$120 - ~$125 million.
• For its Eastern Region rental business, EHL expects the 1HFY22 earnings to be consistent with 2HFY21. For 2HFY22, EHL expects a rise in utilisation in both Eastern & Western regions, underpinned by a robust project pipeline.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s 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 EHL gave a negative return of ~17.22% in the past three months and a negative return of ~24.12% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.860 - $1.370. The stock has been valued using the Price to Earnings Per Share multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median P/E multiple, considering the continuing impacts of COVID-19, changes in commodity prices, tight labour market, and decline in FY21 operating EBITDA. For this purpose of valuation, few peers like Stealth Global Holdings Limited (ASX: SGI), NRW Holdings Limited (ASX: NWH), Acrow Formwork and Construction Services Limited (ASX: ACF), and others have been considered. Considering the current trading levels, improved leverage ratio, debt repayment, increase in operating revenue and operating cash flows, decent outlook and project pipeline, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.865, as of 5 January 2022, 3:06 PM (GMT+10), Sydney, Eastern Australia.

EHL Daily Technical Chart, Data Source: REFINITIV  

Ai-Media Technologies Limited

AIM Details

Daily Buy-Back of Shares: Ai-Media Technologies Limited (ASX: AIM) is a media technology firm offering live and recorded captioning, translation, and transcription services that cater to education, corporate, broadcast, and government sectors. On 4 January 2022, AIM declared to buy-back ~209.50 million ordinary shares for consideration in an on-market redemption of shares operating from 15 November 2021 – 15 November 2022. On 31 December 2021, AIM bought back ~36,156 shares for ~$25,457.57.

Key Takeaways from the Morgans Technology Conference held on 25 November 2021:

• In Q1FY22, AIM launched a new product suite SubSilo™ to increase the efficiency of live streams in downstream applications for parliamentary customers.
• The acquisition of EEG Enterprises in May 2021 has given AIM access to the US live captioning market, blue chip clients, and new sales opportunities to grow the SaaS products in new markets.
• AIM earned ~72% revenue from the Services segment and ~3% from the SaaS segment in Q1FY22 versus ~100% in Q1FY21.

Q1FY22 (ended 30 September 2021) Highlights:

• In Q1FY22, AIM obtained its second parliament contract wherein NSW Parliament will use its SubSilo™ SaaS platform to offer more accessible parliamentary proceedings. The service is expected to begin in 2HFY22.
• AIM added TVSN (a shopping network) in Australia as one of its broadcast clients via a multi-year agreement. It partnered with NBC to broadcast the Olympics and Paralympics.
• AIM declared an on-market buy-back of up to ~2 million shares during the next 12 months and garnered ~$15.31 million cash receipts from customers during Q1FY22.

Growth in Revenue from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces accrual of synergies, stiff competition, technological changes, acquisition of new clients. It faces impairment of financial assets and COVID-19 caused disruptions. 

Outlook:

• AIM is nearing the completion of integration with EEG Enterprises and ahead of schedule. It plans to deploy more engineering resources to deliver a sequence of product improvements during FY22. It plans to penetrate and expand EEG Enterprises’ presence in the APAC and EMEA regions especially in new markets and grow via local partnerships.
• The company has a growing suite of SaaS products and expects improved gross margins as the share of SaaS revenue increases with the commercial launch of new product lines.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s 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 AIM gave a negative return of ~28.57% in the past three months and a negative return of ~20.45% in the past six months. The stock is currently trading slightly above its 52-weeks’ low level of $0.670. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering its slight uptick in the debt-to-equity ratio, continuing net losses, and negative ROE. For this purpose of valuation, few peers like HT&E Limited (ASX: HT1), News Corp (ASX: NWS), Enero Group Limited (ASX: EGG), and others have been considered. Considering the current trading levels, the increased use of video and live streaming globally, new customer wins, and expanded base from the recent acquisition, the launch of new SubSilo™ SaaS product, robust sales pipeline, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.700, down by ~0.710% as of 5 January 2022.

AIM 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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