Downer EDI Limited

Very strong pipeline of work & solid cash performance in FY 18: Integrated services company, Downer EDI Limited (ASX: DOW) continues to deliver solid cash performance in FY 18 along with cash flow conversion of 91% of Earnings Before Interest, Tax, Depreciation and Amortisation despite the negative impacts of the new Royal Adelaide Hospital and some substantial one-off costs. This is also DOW’s seventh year of cash flow conversion of more than 88%. The company has also maintained the strong balance sheet with gearing at 22.7% and the company has undrawn funding capacity and cash of more than $1.5 billion. DOW’s work-in-hand has risen to $42 billion, which reflects a very strong pipeline of work for the years ahead. Moreover, for the first few months of the FY 19, DOW has performed in line with the company’s expectations for the new financial year and is targeting consolidated NPATA of $335 million before minority interests for the FY 19. This reflects a growth of 13% in terms of guidance for 2019, and is indicative of Downer’s stronger position in the major markets. Meanwhile, DOW stock has fallen 22.44%  in three months as on December 11, 2018 as the company in FY 18 reported 36.8% fall in the NPATA on the back of sale of the freight rail business halfway through the year and a weaker result from the Mining business. The stock is trading at the price of level $6.27, and has support at $6 and resistance at $7.09. The group is expected to benefit from the pipeline of work while it is continuously improving its financials. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 6.27, up 3.6% on December 12, 2018.
 

Emeco Holdings Limited

Positive operating NPAT for the first time since FY13: Emeco Holdings Limited (ASX: EHL) in FY 18 has posted positive operating NPAT for the first time since FY13. FY18 operating EBITDA rose 83% to $153 million and operating EBIT grew about 600% on FY17 to $83 million. In FY18, EHL has reduced the leverage to 2.6x (with a pro forma run rate of 2.0x), down from 3.9x in the previous year, which is in line with the company’s deleveraging strategy. In September 2018, EHL had further strengthened their balance sheet as it replaced the $35 million cash advance and $5 million bank guarantee facility expiring March 2020 with a new three year $65 million credit facility expiring in September 2021. This facility has an option and can be extended for a further two-year term to 2023. Moreover, in the first quarter of FY19, the company had a full contribution from Matilda Equipment, secured new contracts and increased the scope on existing contracts. The company has ended the first quarter with operating utilisation at 64%, up from 62% at the start of the quarter. Meanwhile, EHL stock has fallen 37.91% in three months as on December 11, 2018. From fundamental standpoint, the EBITDA margin has been expanding while the company is working on improving other metrics. The stock is trading at the price of level $2.12, and has support at $2.01 and resistance around $3. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $ 2.12.
 

Clean TeQ Holdings Limited

Appointed Metallurgical Corporation of China Ltd (MCC) as a key project delivery partner: Clean TeQ Holdings Limited’s (ASX: CLQ) stock lately reached a 52-week low of about 38 cents, therefore, now it seems to be recovering from the recent lows. CLQ in FY18 has completed Definitive Feasibility Study. The company has signed maiden product offtake agreement with Beijing Easpring for 20% of nickel and cobalt sulphate production. During the September quarter, CLQ is having discussions with numerous potential investors and offtake partners in the industrial sector, that comprises of major vehicle and consumer electronics manufacturers and participants across the lithium ion battery supply chain. These parties have shown strong interest in securing long-term supply of the raw materials which are critical to their businesses. Moreover, CLQ for the development of the Clean TeQ Sunrise Project has appointed Metallurgical Corporation of China Ltd (MCC) as a key project delivery partner. CLQ and MCC are currently finalising the terms of a Front-End-Engineering and Design (FEED) contract. This is expected to commence during the fourth quarter of 2018 and is structured on a reimbursable cost basis. Formal construction is now targeted to commence by mid-2019. Additionally, CLQ has raised A$155 million to boost the development of the project. Meanwhile, CLQ stock has fallen 20.83% in three months as on December 11, 2018. The stock is trading at the price of level $0.405, and has support around this level and resistance around $0.64. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $ 0.405, up 6.6% on December 12, 2018.
 

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