Austal Limited

ASB Details

Delivery of Vessels and New Contract: Austal Limited (ASX: ASB) is engaged in the designing, manufacturing, and support of high-performance vessels for commercial and defence customers globally. Recently, the company has delivered the 13^th Guardian-class Patrol Boat (GCPB) to the Australian Department of Defence. Previously, Austal Philippines has delivered Banaderos Express to Fred, which resulted in the completion of a $190 million contract for two trimarans, which was announced in December 2018.

• On 6 October 2021, the company announced that Austal USA had secured a US$145 million construction contract of its first steel vessel from the United States Navy.
• ASB was first awarded a contract of US$3.6 million by the United States Navy for the functional design of the Navajo-class T-ATS vessels.

FY21 Financial Summary:

• Fall in Revenue: During FY21, the company recorded revenue amounting to $1,572 million as compared to $2,086 million in FY20, reflecting a fall of 24.6% due to lower throughput and support work in the US, COVID-impacts, as well as an appreciating Australian Dollar against the US Dollar.
• Second Highest NPAT and EBIT: ASB posted its second largest NPAT and EBIT in its history at $81.1 million and $114.6 million, respectively, despite the fall in its topline. The EBIT result was mainly backed by improved shipbuilding margins, specifically in the USA.
• Decent Order Book: The company possesses an order book of $2.5 billion, which may help the company in running its operations smoothly until 2025.

EBIT & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Macro-Economic Uncertainty: The company’s operation could be impacted by any macro-economic events like COVID-19, and financial and operational health could be under threat.
• Forex Headwinds: ASB’s increasing expansion in multiple geographies may create forex risk to its financial health caused by unfavourable movement in the currency.

Outlook:

• The company is on the way to being steel ready by May 2022 and is engaged in its first program to demonstrate steel capability with the help of the T-ATS programme.
• ASB anticipates revenue for FY22 to be at ~$1.5 billion, which is based on an assumed USD / AUD exchange rate of 0.75.
• The company has scheduled to conduct the 2021 Annual General Meeting on 11 November 2021.

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: During the year, the company declared a final dividend of 4 cents per share, which took the final dividend to 8 cents per share. The company closed FY21 with a cash balance of $346.9 million against $396.7 million as on 30 June 2020. Gross debt excluding Cape Class Patrol Boat (CCPB) 9 & 10 at the end of FY21 decreased to $115.0 million as compared to $124.3 million as on 30^th June 2020. The stock of ASB is trading below its 52-week low-high average of $1.610-$3.16, respectively. The stock has been corrected by ~12.27% and ~23.90% in the past three and six months, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 disruptions, forex impact, and decrease in ROE. For the purpose of valuation, peers such as Electro Optic Systems Holdings Ltd (ASX: EOS), PTB Group Ltd (ASX: PTB), and Quickstep Holdings Ltd (ASX: QHL) have been considered. Considering the expected upside in valuation, decent order book, reduced gross debt, higher margins, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.880, as on 26 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ASB Daily Technical Chart, Data Source: REFINITIV 

Imagion Biosystems Limited

IBX Details

Signing of Joint Development Agreement: Imagion Biosystems Limited (ASX: IBX) is engaged in the research and development of medical diagnostics. Recently, the company has inked a joint development agreement with Global Cancer Technology (GCT) for the development of GCT’s novel nanoscintillator technology for the treatment of breast cancer.

• As per the terms of the Agreement, the company would be paid for certain R&D services while gaining an ownership interest in the arising GCT nanoscintillator product.
• In addition, the estimated costs include material, labor and any third party or subcontracted costs, and will be paid by GCT.

1HFY21 Financial Summary:

• Increase in Revenue: During 1HFY21, the company recorded revenue and other income of ~$0.16 million as compared to ~$0.11 million in 1HFY20.
• Improved Bottom Line: The company’s net loss during the half-year was improved by $0.3 million to $1.5 million, aided by increased income from research & development tax incentives.
• Decrease in Cash Outflow from Operations: As a result of the increase in research & development tax incentives, the company’s operating cash outflows decreased by 47% to $0.7 million in 1HFY21.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Failure of Clinical Trials: The company’s operational health could be impacted by any failure in clinical trials, which may lead to disruption in running its operations smoothly.
• Regulatory Risk: IBX’s business model is exposed to a more complex regulatory environment; any failure could lead to fines, penalties, etc.

Outlook:

• Looking forward, the company anticipates increased expenditure on its human-trial in relation to HER2 breast cancer, which was started in December 2020.
• IBX is also likely to carry out other research and development projects across the remaining 2021 period and into 2022.

Stock Recommendation: The company closed 1HFY21 with an increased cash balance of $13.9 million as compared to $13.2 million as on 31 December 2020. This increase was bolstered by the receipt of $1.6 million from the exercise of options in 1H2021 and research & development tax incentives of $2.6 million from the Australian Taxation Office. The stock of IBX is trading near to its 52-week low level of $0.062, offering decent opportunity for accumulation. The stock has been corrected by ~8.00% and ~14.81% in the past one and three months, respectively. The stock of IBX is trading at a P/BV multiple of 5.6x as compared to the industry average (Healthcare) of 7.7x on a TTM basis. As a result, the stock seems undervalued at the current trading levels. Considering the valuation on a TTM basis, rising topline, improved losses and cash outflows from operations, increased cash balance, agreement with GCT, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.069, down by ~4.167% as on 26 October 2021.

IBX 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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