Silex Systems Limited

SLX Details

Investor Presentation Highlights: Silex Systems Limited (ASX: SLX) is involved in the development of the SILEX uranium enrichment technology for the nuclear fuel industry and the SILEX Zero-Spin Silicon project (ZS-Si) for quantum computing industry. The company has licensed the use of SILEX technology solely to GE-Hitachi Global Laser Enrichment LLC (GLE) in the US. In a recently released presentation on 1 December 2021, SLX outlined the following aspects supporting the commercialisation of its SILEX technology:

• The emergence of advanced nuclear reactors (such as SMRs & ARs) with low capital costs, & higher safety potential, and a positive outlook towards achieving zero-carbon emissions will add to the growing demand for nuclear fuel and power generation.
• The expected uranium supply deficit, demand from the US, and its estimated market size for HALEU (high-assay low enriched uranium) fuel are expected to grow opportunities for nuclear projects in the future.
• SLX is focusing on its core Paducah Laser Enrichment Facility (PLEF) uranium project wherein GLE has a contract with the US Department of Energy (DPOE) to buy & enrich US tails inventories via its SILEX technology to produce natural uranium. SLX plans to produce U₃O₈ (uranium compound) up to 5 million lbs p.a. for ~30 years.

SPP Capital Raise: The company recently raised ~$18 million via a Share Purchase Plan (SPP) at ~$1.31 per share in October 2021. SLX reported ~205 million shares on issue post the capital raise from SPP.

AGM Presentation Highlights:

• As of 30 September 2021, SLX held ~$51.8 million net assets, inclusive of ~$43.5 million cash and ~$5.8 million in IQE shares.
• SLX has initial customer contracts with SQC and UNSW Sydney for producing silicon via the ZS-Si project. It is engaging with other potential customers to increase the offtake.

Cash & Cash Equivalents Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of developing IP, project commercialisation, and regulatory changes. It faces the risk of adequate funds to develop, research, and undertake commercialisation activities to market the technology.

Outlook:

• SLX and GLE are actively evaluating more commercial avenues at the PLEF (Paducah Laser Enrichment Facility) project to produce Low Enriched Uranium (LEU) for traditional nuclear plants and High Assay LEU (HALEU) for small modular reactors (AMRs). The company is exploring opportunities to collaborate with the SMR/AMR vendors.
• For the Zero-Spin Silicon (ZS-Si) project, SLX is nearing the Stage 2 project completion by the end of CY21. Along-with project partners, Silicon Quantum Computing (SQC) and UNSW Sydney, SLX aim to ramp up to pilot commercial production by CY22-End.
• SLX has developed a new high frequency (RF) filter product - IQepiMo™ using advanced semiconductor technology, cREO®. It is advancing with the product trials to develop the technology to be used in 5G mobile applications.

Stock Recommendation: The stock of SLX gave a negative return of ~16.66% in the past month and a negative return of ~26.28% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.620 - $1.970. Considering the current trading levels, increase in revenue, improved net loss position in FY21, expected increase in uranium demand, investment, and interest in the development of next-generation SMRs/ARs, the role of nuclear power in achieving net-zero carbon emission targets, technical commentary mentioned below, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.150, down by ~8.000% as of 6 December 2021.

Technical Commentary: 

On the daily chart, SLX stock prices are witnessing the selling pressure from the higher levels and now prices are approaching the rising trendline support zone. The momentum oscillator RSI (14-period) is trading near an oversold zone at (~33.69 level), which indicates the possibility of rebound in the stock from the current levels. However, the prices are trading below the trend-following indicator 21-period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at AUD 1.020 while the key resistance level is placed at AUD 1.32.

SLX Daily Technical Chart, Data Source: REFINITIV  

Spirit Technology Solutions Limited

ST1 Details

AGM Presentation Highlights: Spirit Technology Solutions Limited (ASX: ST1) is a provider of managed IT services, telecommunications, cloud services, and cyber security services to small and medium-sized enterprises (SMEs), SMBs, and corporates in Australia. The company presented the following trading update after its meeting on 29 November 2021:

• The company achieved ~$30.9 million revenue, up 98% YoY and a positive underlying EBITDA of ~$2.0 million in Q1FY22, despite the lockdown situation in Melbourne, Sydney, and Brisbane and seasonally a slower quarter.
• As of 24 November 2021, ST1 held ~$22.3 million capital via a mix of cash balance (~$15.3 million) and CBA bank debt facility (~$7 million).
• The company witnessed sales recovery in November across SMB and Corporate segments after a quarter of lockdown in Q1FY22. ST1 gained new corporate deals in education and banking verticals. Post the acquisition of Nexgen, ST1 is experiencing a recovery in SMB Data & Voice sales to Q4FY21 levels.
• ST1 expanding its salesforce and distribution in Australia in Q2FY22, due to growing demand. The structural business changes (consolidation in the sector) and COVID-19 environment are driving demand for more digital workplace solutions across Data, Cloud, and Cyber services.
• ST1 released ~5.92 million shares from the escrow account on 3 December 2021.
  

 Revenue Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces cyber security risks, business integration from multiple recent acquisitions, and technological shifts in the industry. It continues to face labour shortages, delays in chip manufacturing, and hardware deployments of IT and technology projects due to COVID-19.

Outlook:

• ST1 is contemplating ways to divest its fixed wireless towers and expects to update the market in Q3FY22. The sale of assets would recover significant capital for organic and acquisition growth activities.
• The company has identified B2B Telco and Cloud as the acquisition targets. It plans to deploy funds from the divestment of assets for funding acquisitions in 2HFY22.
• With the acquisition of Nexgen, ST1 focuses on cross-selling of products and services, bigger deal size, and contract length to drive revenue in FY22 and FY23.

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 ST1 gave a positive return of ~4.08% in the past three months and a positive return of ~21.66% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.210 - $0.450. The stock has been valued using the Price to Earnings-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 premium than its peers’ median P/E multiple, considering recovery in demand from SMB & Corporates, growing pipeline across mining & healthcare, and expected opportunities to cross-sell with Nexgen. For this purpose of valuation, few peers like Uniti Group Limited (ASX: UWL), TPG Telecom Limited (ASX: TPG), Spark New Zealand Limited (ASX: SPK), and others have been considered. Considering the current trading levels, increase in revenue, expansion in salesforce, a positive underlying EBITDA, sales recovery post-lockdowns, acquisition growth strategy, accelerated demand, valuation upside, and key associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.225, as of 6 December 2021, 11:07 AM (GMT+10), Sydney, Eastern Australia.

ST1 Daily Technical Chart, Data Source: REFINITIV 

Dropsuite Limited

DSE Details

Q3FY21 Key Takeaways: Dropsuite Limited (ASX: DSE) offers a cloud-software platform empowering firms to backup, restore, and protect business information. Its cloud products portfolio comprises email archiving, Google workspace backup, Office 365 backup, and website backup.

• The company posted an increase of ~81% Y-o-Y in ARR (Annual Recurring Revenue) to ~$13.1 million in Q3FY21 (ended 30 September 2021). The number of reseller partners and end-users increased to ~395 and ~575,000 by the quarter-end.
• The liquidity position improved to ~$21.4 million, up by ~641% Y-o-Y as of 30 September The improved liquidity was due to a ~78% Y-o-Y rise in cash receipts, ~$20 million institutional placement, and positive operational cashflows in Q3FY21.

Cash Receipts from Customers Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces cyber security risks, volatility in foreign-denominated transactions, and technological changes.

Outlook:

• The company expects that regulatory and data security market tailwinds will remain in the near term.
• DSE is on track to generate ARR growth through a partner network and a robust sales pipeline.
• The company will invest in the continuous expansion of sales distribution channels, new product integrations with the recently raised funds to remain a leading and preferred backup vendor.
• DSE is well-placed to deliver a profitable operating EBITDA for FY21.
• The firm is progressing with accretive M&A opportunities to leverage present internal growth and market tailwinds around data security.

Stock Recommendation: The stock of DSE gave a negative return of ~11.95% in the past three months and a positive return of ~1.25% in the past three months. The stock is currently trading slightly above the 52-weeks’ average price level band of $0.105 - $0.285. Considering the current trading levels, growth of in SaaS revenue, a growing & data backup and recovery market, positive market tailwinds, a strong pipeline, technical commentary mentioned below, decent ARR growth outlook, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.2025, down by ~3.572% as of 6 December 2021.

Technical Commentary:

DSE prices are hovering near an upward sloping trend line support level, indicating the possibility of an upside movement in the stock on the daily chart. The momentum oscillator RSI (14-period) is trading near an oversold zone at (~35.56 level), which indicates the possibility of rebound in the stock from the current levels. Now an immediate support level for the stock appears at AUD 0.182 while resistance is at AUD 0.225.

DSE 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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