Stocks’ Details

Ava Risk Group Limited

A Look at the Q3FY21 Financials: Ava Risk Group Limited (ASX: AVA) develops security technology products under Future Fibre Technologies (FFT) and provides secure access control products under BQT Solutions. It also operates an international logistics division. As of 11 May 2021, the market capitalisation of AVA stood at ~$99.06 million. The company reported cash receipts of $14.8 million, up by 66% YoY and incurred $11.8 million of cash outgoings in Q3FY21. Its net cash flows from operating activities stood at $3 million in the quarter versus $1.1 million in Q3FY20. On 10 March 2021, AVA paid 2 cents per share of a special dividend. The Group progressed to developing its Aura IQ and Aura Ai solutions, continuing its IP and R&D spend in the quarter. AVA Global Logistics, the Services Division, saw increased client activity in Q3FY21 with the addition of precious metals refiners, mining firms, and banks as clients. The company held consolidated net cash of $11.74 million and had a debt-free balance sheet. 

Q3FY21, Growth in Customer Receipts (Source: Company Reports)

Received $1.84 million Security Upgrade Contract: On 25 March 2021, AVA announced the award of a $1.84 million contract for the deployment of its Aura-Ai sensing solution. The project is a multi-site program for security upgrade in certain major rail facilities in South America. It has received the $0.61 million of the first purchase order. It will deploy the solution at the first sites in early Q4FY21 and the balance sites before the close of Q4FY21.

Key Risks: The company experienced issues in some parts of its business operations, restricted site services to clients, delayed project deliveries and travel, and restraints on air freight capacity due to COVID-19. It bears the risk of employees’ health & safety during pandemic times.

Outlook: During Q3FY21, AVA supplied over 1,900 units to the end-user and will deliver over 300 units under the Indian Ministry of Defence (IMOD) agreement during 2HFY2021. Due to the worsened COVID-19 situation in India, AVA might experience delayed delivery till Q1FY2022. The FFT Aura IQ conveyor health monitoring solution continues to generate significant commercial interest. AVA has advanced on commercial negotiations for its Aura IQ solution and forecasts to sign new deals to deploy Aura IQ to multiple sites in Q4FY2021.

Stock Recommendation: The stock of AVA gave a negative return of 33.60% in the past three months and a positive return of 91.38% in the past nine months. The stock is currently trading closer to its 52-weeks’ average price level of $0.145-$0.785. The stock of AVA has a support level of ~$0.364 and a resistance level of ~$0.433. On a TTM basis, the stock is trading at an EV/Sales multiple of 1.3x lower than the industry (Technology) median of 5.7x, and thus seems undervalued. Considering the current trading levels, increase in cash receipts and net cash operating cash flows, award of new contract for Aura-Ai solution, increase in new clients for the logistics division, debt-free balance sheet, valuation, and associated risks of the COVID-19 situation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.405, down by 1.220% on 11 May 2021. 

Pearl Global Limited

A Look at the Q3FY21 Results: Pearl Global Limited (ASX: PG1) is a clean technology company that uses technology to convert the residual life of tyres into secondary products such as fuel oil, carbon char, steel, and energy. It has the regulatory approval to convert rubber through its thermal treatment plant. PG1 has achieved the first commercial sales from its production facility in Queensland. As of 11 May 2021, the market capitalisation of PG1 stood at ~$29.38 million. During Q1FY21, the company reported cash receipts of $397k, up 50% QoQ in Q1FY21. It processed 523 tonnes of waste tyres into construction materials and energy products, lower than expected. The lesser output was due to the machine downtime due to operational improvements during the quarter.  

During Q3FY21, PG1 inked new long-term sales contracts with Aussee Road Services Pty Limited (extended), Stanley Macadam Pty Limited-SMPL (five-year fuel oil offtake agreement), and Bituminous Products. PG1 reported cash outgoings of $2.04 million in Q3FY21. PG1 holds $400K of inventory on hand and a cash balance of $5.7 million as of 31 March 2021. 

Q3FY21 Highlights (Source: Company Reports)

Key Risks: The company faces the risk of changes in the production levels, disruptions in the supply chain and order deliveries on projects due to the pandemic situation. It also meets the risk of changes in the prices of products produced.

Outlook: PG1 is expanding capacity at its Stapylton facility, Queensland, through the construction of a crumb rubber processing plant for developing into a new product line. With the crumb rubber supply agreement signed with Bituminous Products, PG1 foresees an increase of $2.5 million in the yearly annual revenue and the crumb rubber plant operating at the total capacity of 3,000 tonnes per year. Given the forthcoming ban on the used tyre exports and growth in the demand for recycled products & services anticipated in CY21, PG1 foresees the opportunity to increase its sales and production in 2021.

Stock Recommendation: The stock of PG1 gave a negative return of 12.22% in the past six months and a positive return of 16.17% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level of $0.057-$0.115. The stock of PG1 has a support level of ~$0.066 and a resistance level of ~$0.096. Considering the current trading levels, decent results of Q3FY21, increase in its supply and offtake agreements, and associated risks of the COVID-19 situation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.079 on 11 May 2021. 

Vortiv Limited

Return of Capital to Shareholders: Vortiv Limited (ASX: VOR) is a technology firm operating Cloudten Industries Pty Limited, a cloud and cloud security firm and Decipher Works Pty Limited, a cyber security company. It holds a non-controlling interest of 24.89% in Transaction Solutions India (TSI). As of 11 May 2021, the market capitalisation of VOR stood at ~$5.62 million. On 11 March 2021, VOR announced its decision to return the capital to its shareholders based on the sale of its principal undertaking. The capital return is planned via a dividend payment of $7.8 million and an equal capital reduction of $14.05 million to shareholders (10 cents per share held on the relevant record date). The shareholders approved the capital reduction at the Extra Ordinary General Meeting (EOGM) held on 19 April 2021. VOR paid the capital return to the eligible shareholders on 30 April 2021. VOR will now apply for an ATO (Australia Taxation Office) class ruling for the capital reduction. This regulation will impact the payment made to certain shareholders (NRIs and those who have not lodged their tax file number with VOR’s share registry) on 30 April. The company can only make the submission of the class ruling to the ATO after finalising the Annual Accounts.  

Hostile Notices Withdrawn: On 13 April 2021, the Board announced the receipt of notices from Rocket Science Pty Ltd ATF the Trojan Capital Fund (Requisitioning Shareholder-RS), seeking the removal of the recently appointed Mr Nicholas Smedley as an Independent Non-Executive Chairman of VOR. A similar notice was placed earlier recommending the two Board nominees of the choice of the RS. The Board believes such actions by the RS are hostile attempts to seek control of the company and urged its shareholders to vote against all resolutions at the general meeting held on 19 April 2021. On 23 April 2021, VOR informed the withdrawal of the notices by the RS and of its request considering the removal of Mr Smedley as a Director in VOR’s general meeting.

A Look at the 1HFY21 Results: In 1HFY21, VOR posted revenue of $6.78 million, up by 21% YoY owing to the growth of its customer base, driven by technical expertise and knowledge of the client’s IT environment. The company registered $1.7 million of net cash flow from operations, up by 21% YoY. The net profit before tax stood at $0.88 million, up by 96% YoY in 1HFY21. In 1HFY21, VOR repaid $0.8 million of convertible notes, including interest. It held a cash and cash equivalents balance of $1.84 million as of 30 September 2020.

TSI India has posted decent financial results for the September 2020 quarter, with unaudited revenue of $12.3 million and Underlying EBITDA of $3.2 million.

1HFY21 Result Highlights (Source: Company Reports)

Key Risks: The company faces the risk of pandemic disruptions, It also faces the risk of cybersecurity vulnerabilities, technological upgrade, and recruiting technical experts in the cyber security space.   

Outlook: VOR focuses on acquiring well-priced, high growth businesses capable of being listed on the exchange and seek capital access. VOR intends to make a further payment to the affected shareholders net of any withholding sum as needed by the ATO, once the authority determines and communicates the part of the amount to be treated as an unfranked dividend (if any).

Stock Recommendation: The stock of VOR gave a positive return of 5.85% in the past three months and a positive return of 13.87% in the past six months. The stock is currently trading closer to its 52-weeks’ average price level band of $0.0212-$0.0678. The stock of VOR has a support level of ~$0.033 and a resistance level of ~$0.045. On a TTM basis, the stock of VOR is trading at an EV/Sales value multiple of 0.3x lower than the industry (Technology) median 5.7x, thus seems undervalued. Considering the current trading levels, increase in the top-line and net cash flow from operations in 1HFY21, valuation on a TTM basis, associated risks of the COVID-19 restrictions and investment in the technological network, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.038, down by 5.001% on 11 May 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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