Adveritas Limited

AV1 Details

Adveritas Limited (ASX: AV1) provides innovative software solutions that leverage big data to drive business performance.

Result Performance for the Year Ended 30 June 2021 (FY21)

• Annualized revenue from enterprise client wins for FY21 stood at $1 million as of 30 June 2021, an increase of 111% over the six months since December 2020.
• Freemium subscribers increased by ~400% on 30 June 2021 to ~2,690 compared to the year ago, with the freemium conversion rate at 15% in FY21.
• The company has a cash balance of $3.2 million and no debt as of 30 June 2021. The company completed a $3.0 million private placement in July 2021 to accelerate the growth momentum of the company

Financial Summary (Source: Company Report) 

Outlook:

As per the press release on 5 October 2021, the company is witnessing continued momentum in annualized revenue growth. The annualized revenue currently stood at around $1.6 million, an increase of 55% and 150% since 30 June 2021 and 31 March 2021, respectively. Further, the company has signed 12-months contracts with various reputed companies. These new contacts will aid in the annualized revenue of the company. Besides, TrafficGuard has numerous contracts that are under process across fintech, gaming, retail, and on-demand verticals, thus enhancing its revenue potential.

Key Risks:

The company is exposed to market risk, credit risk, liquidity risk, interest rate risk, currency risk, and other price risks. Also, the company is exposed to ever-changing technological upgradation and innovations risk.

Stock Recommendation:

The company has delivered 6-month and 9-month returns of ~-36.67% and ~-52.50%, respectively. The stock is trading lower than the average of the 52-week high price of $0.225 and the 52-week low price of $0.091.

Meanwhile, the asset turnover of the company for FY21 stood at 0.14x in FY21 versus the industry median of 0.39x. Further, the fixed asset turnover stood at 1.61x in FY21 lower than the industry median at 8.56x.

Considering the factors above, its current trading levels, and the associated business risks, we advise investors to book profits. Accordingly, we give a “Sell” rating on the stock at the current market price of $0.115 per share, up 9.523% as of 8^th October 2021.

Technical Chart:

Source: REFINITIV; Note: Purple Color Line Reflects RSI (14-Period) 

Murray Cod Australia Limited

MCA Details

Murray Cod Australia Limited (ASX: MCA) is involved in the business of breeding as well as growing and marketing Murray cod, a freshwater table fish. It holds the Aquna Sustainable Murray Cod.

Result Performance for the Year Ended 30 June 2021 (FY21)

• Revenue increased significantly to $9.72 million in FY21 from $3.96 million in FY20 despite a challenging year amid COVID-19.
• The company has reported a net loss after tax of $1.16 million in FY21 compared to the net profit of $61,690 in FY20.
• The company has substantially augmented its operational capacity in FY21 by way of adding capacity in the grow out farms.

Consolidated Income Statement (Source: Company Report) 

Market Update

• Reached Agreement: The company, on 4 October 2021, updated that it has finalised an agreement in principle with Coles. This agreement is towards starting a pilot selling of packaged Aquna Sustainable Murray Cod across 25 supermarkets of Coles. Further, the company has agreed with Harris Farms to start selling packaged Aquna Sustainable Murray Cod across the seafood stores.
• Restart Exports: MCA has recently restarted the exports to the USA and Japan at an immaterial level. It is aiming to raise the exports to the USA in a timeframe of one year. Although the company has not yet got any orders from Japan, however, it received strong enquiries for substantial volumes. Meanwhile, the restart of exports to the UK and Europe is under process which is expected to complete soon.
• Other Update: The company expects the processing equipment to reach in December and the operation of the machinery to start by February 2022.

Key Risks

The company’s operations are exposed to the risk of disease and other problems of the biological product. Its sales are highly concentrated in Australia. Any slowdown in the Australian economy would adversely impact its future sales. Further, its operations are prone to environmental regulatory risk under the laws of the Commonwealth and State.

Outlook

The benefits of robust sales performance in FY21 have aided the company to advance its aggressive expansion towards its 2030 target of 10,000 tonnes. Although the impact of lockdown in Sydney and Melbourne during July and August 2021 amid COVID-19 pandemic affected its sales performance during the period, however, the company believes to achieve its sales targets for FY22 driven by its other initiatives. Currently, the group emphasises generating operational efficiencies across business segments. This will be achieved through investment in upgraded technology and management systems. Further, it focuses on investment in productive capacity to cater to the robust latent export and domestic demand for its product. It also focuses on developing export markets through investment in marketing programs globally and branding. 

Valuation Methodology: Price/BV Based Relative Valuation (Illustrative)

Stock Recommendation

MCA has delivered 9-months and one-year returns of ~+105.26% and ~+116.67%, respectively. The stock is trading higher than the average of the 52-week high price of $0.485 and the 52-week low price of $0.165.

The stock has been valued using Price/BV multiple-based illustrative relative valuation and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to Price/BV Multiple (NTM) (Peer Median), considering its negative net margin at -12.0% in FY21 compared to the Industry Median of 7.1% and a longer cash conversion cycle at 729.0 Days in FY21 versus Industry Median of 46.6 days.

Considering the aforementioned factors along with its current trading levels, and the associated business risks, we advise the investors to book profits. We give a “Sell” rating on the stock at the current market price of $0.40 per share on 8^th October 2021 (Time: 3:24 PM (GMT+10), Sydney, Australia).

Technical Analysis:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period) 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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