1414 Degrees

14D Details

Acquiring of Aurora Project to Stimulate Revenue Growth:1414 Degrees (ASX: 14D) is engaged in the business of commercialising energy storage technology, thermal energy storage system providing a low-cost solution to intermittent energy supply and recovering electricity through a turbine on demand. The market capitalisation of the company stood at $35.35 million on 5^th December 2019.


Business Model (Source: Company Reports)

Acquisition of Aurora Project to Scale Up the Storage Capacity:The company is going to acquire SolarReserve Australia II Pty Ltd, which owns the Aurora Solar Energy Project near Port Augusta in South Australia and two solar sites in New South Wales. The Aurora Project has SA Government’s development approval for a 70 MW of solar PV farm and 150 MW of generation from a concentrated solar thermal plant (CST). The company has planned to use the site to pilot its world leading TESS-GRID technologies. 

The company will seek approval from the Government and stakeholders to submit a new development application to provide upto 400 MW solar PV along with the installation of the TESS-GRID technologies. The company could also buy and store electricity generated by other renewable firms with the objective of strengthening firming services and earning from market arbitrage. 

The company’s Cash Position Remain Strong: At the end of the quarter, ended on 30^th September 2019, the company had a cash balance of $7.7 million, which is expected to be boosted with a substantial R&D rebate in November. The company’s cash balance remains strong mainly because of a decrease in monthly outgoings after the commissioning of the GAS-TESS. Company’s total assets are now more than $17 million.

Key Focus Areas for the Future Growth: As per the company, the global market indicates that there is demand for tens of thousands of GAS-TESS in the near future, to replace the existing engines in Wastewater Treatment Plants. The company expects that GAS-TESS will lead to its first significant revenues for the company.  

Stock Recommendation: Over the past five years (FY15 to FY19), the company has registered a CAGR of 39.16% in revenue. As per the ASX, the stock price is trading below the average of 52-week high and low. Company’s price to book value stood at 1.7x on TTM basis, which is below the industry (Industrials) average of 4.9x on a TTM basis.  Based on its CAGR growth, strong cash position and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.200, down 2.439% as on 05 December 2019.

 
14D Daily Technical Chart (Source: Thomson Reuters)

Capitol Health Limited

CAJ Details

Significant Increase in Growth Capex to Drive Sales: Capitol Health Limited (ASX: CAJ) is headquartered in Melbourne and operates clinics throughout Victoria, Tasmania and Western Australia. The company provides diagnostic imaging and related services to the Australian healthcare market. The market capitalisation of the company stood at $176.73 million on 5^th December 2019.

FY19 Result in-line with Guidance: The company’s full-year results were in-line with the guidance provided in February for FY19. CAJ reported revenue of $149.2 million for FY19, up 25% YoY and the company’s underlying EBITDA stood at $26 million, up 21% YoY. There was a slight decline in underlying EBITDA margins on YoY basis, due to an increase in radiologist capacity and subdued demand. During the year, the company generated a free cash flow of $12.4 million, more than 100% on pcp basis. During the year, the company completed the acquisition of 7 clinics, which added 16 clinics and entry into the WA market for Capitol Network. 


Financial Summary (Source: Company Reports)

Industry Performance for FY19: In FY19, there was a strong decline in Medicare diagnostic imaging service growth levels from the previous year and were more consistent with the declines seen in 2015-2016 to an average of 3%. The company’s demand is strongly correlated with GP attendance, and more than 80% of the company’s referrals come from GP’s referrals, and more than 75% of services are bulk billed. GP attendance was mainly weak in FY19 and moved down in the second half.

Outlook for FY20: The company will focus on delivering organic growth in underlying EBITDA for FY20.It is ready to deliver stronger growth in FY21 through investment in systems, process and capacity. The Medicare DI indexation, which will be introduced in July 2020, is expected to be CPI for 80% of outlays.

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Stock Recommendation:The company reported a 7.72% CAGR growth in its revenues over the last five years (FY15 to FY19). Also, the company has improved its EBITDA margins from 13.7% in FY16 to 17.4% in FY19. Looking at consistency in the financial performance of the company and investment projects in pipelines, and other factors, we have valued the stock using Price to Cash Flow multiple approach, which gives an upside of lower double-digit (in percentage terms). We recommend a “Speculative Buy” rating on the stock at the current market price of $0.230 per share on 5^th December 2019.
 
CAJ Daily Technical Chart (Source: Thomson Reuters)

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