Reliance Worldwide Corporation Limited

RWC Details

Sales Growth in All Segments: Reliance Worldwide Corporation Limited (ASX: RWC) is engaged in the manufacturing and supply of water flow and control products and solutions for the plumbing industry. The market capitalisation of the company stood at $3.02 Bn as on 1^st October 2020. Recently, the company released its trading update for the period up to and including 25 September 2020, wherein, it stated that sales performance in each of the three regions, Americas, APAC, and EMEA, has continued to track in line with the FY20 sales performance. The company added that sales in Americas have witnessed a growth of 29%, which was supported by carryover of orders from August because of general logistics timing, and one additional trading day in the September 2020 period. The APAC and EMEA segments posted sales growth of 4% and 24%, respectively.

Sales Performance (Source: Company Reports)

Decent Growth in Sales and Cash Generation: During FY20, the company experienced a rise of 5% in net sales to $1,162 million over FY19, which was primarily supported by strong performance in America, Asia Pacific, and the UK and European sales. In the same time span, the company reported NPAT amounting to $89.4 million and witnessed a decent cash generation with an increase of 56% in cash flow from operating activities to $278.3 million. For FY20, the company declared a final dividend of 2.5 cents per share, which is payable on 9^th October 2020.

Outlook: Looking forward, the company is expecting its core end-markets to remain strong. In addition, the company is focused on product extensions and new products, which will expand the basket for existing end users. The company has scheduled to conduct its Annual Shareholders Meeting on 29^th October 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company managed to close the year with a healthy balance sheet comprising liquidity of $511 million. During the year, the company reduced its net debt by $124.4 million to $302.2 million.  On the technical analysis front, the stock price of RWC has a support level of ~$2.539 and a resistance level of ~$4.757.  We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of single-digit upside (in percentage terms). For the purpose, we have taken peers such as GUD Holdings Ltd (ASX: GUD), Boral Ltd (ASX: BLD), James Hardie Industries PLC (ASX: JHX), etc. Therefore, considering the growth in sales, healthy balance sheet and decline in debt balance, we give a “Hold” recommendation on the stock at the current market price of $4.220 per share, up by 10.471% on 1^st October 2020, owing to trading update for September 2020.

RWC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Aeris Environmental Limited

AEI Details

Partnership with SABCO: Aeris Environmental Limited (ASX: AEI) is involved in the development and sale of products to eliminate biofilm growth in air conditioning systems and water treatment systems to improve indoor air quality. The market capitalisation of the company stood at $122.49 Mn as on 1^st October 2020. Recently, the company announced that it has entered a partnership with SABCO, which is wholly owned by the American Libman Company.  In addition, Aeris has obtained an initial order for $415,000 for SABCO’s ‘Ultrashield Pro’.

Financial Highlights: For the year ended 30^th June 2020, the company recorded revenue amounting to $14,632,000, which surpassed the guidance of $13,000,000. During FY20, the company reported a maiden pre-tax profit amounting to $1,428,000. In addition, the company experienced sustained improvement in the gross margin to 55% as a result of an increased mix of its higher-margin branded products. On the back of greater production efficiency, the company is expecting a rise in margin moving forward. In the months of April 2020, the company raised $12,040,000 vis share placement of 28 million new fully paid ordinary shares at $0.43 per share to leading institutional and sophisticated investors. The company is using these funds to support growth in its manufacturing and supply chain capability, along with the expansion of its resources for the growing international distribution network.

Key Financials (Source: Company Reports)

Outlook: The company believes that the opportunities for its business are likely to grow, moving forward. AEI continues to generate innovation with an attractive R&D pipeline, which would be well aligned to its anticipated growth in production.

Stock Recommendation: The company ended FY20 in a debt-free position. Current ratio of the company stood at 7.32x in FY20 as compared to the industry median of 1.25x. This indicates that the company possesses decent capabilities to pay short-term liabilities against the broader industry. The stock of AEI has provided a return of 5.21% in the past six months. The 52-week low-high range for the stock stands at $0.240-$0.870, respectively. On the technical analysis front, the stock price of AEI has a support level of ~$0.479 and a resistance level of ~$0.691. Hence, considering the growth in revenue, rise in gross margin, debt free position and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.540 per share, up by 6.931% on 1^st October 2020.

AEI Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Althea Group Holdings Limited

AGH Details

Receipt of Standard Processing License: Althea Group Holdings Limited (ASX: AGH) is involved in the sales and distribution of medicinal cannabis products along with the development of a manufacturing and cultivation facility. The market capitalisation of the company stood at ~A$115.49 million as on 1^st October 2020. Recently, Health Canada has provided Standard Processing Licence to Peak Processing Solutions, a wholly owned subsidiary of AGH. This Licence enables Peak Processing Solutions to start operations at the recently completed 3,716 sqm facility in Tecumseh, Ontario. Peak would manufacture Cannabis 2.0 products on behalf of third parties and supply medicinal products to Althea Company Pty Ltd.

Decent Growth in Revenue: During FY20, the company continued to implement its strategic growth plans and made significant progress in all aspects of its business. In Australia, the company experienced quick uptake of its medicinal cannabis products. This was supported by its two-pronged strategy comprising its on-the-ground Medical Science Liaison team and Althea Concierge™. Revenue for the period amounted to $5,062,000 as compared to $767,000 in FY19. Net loss for the year amounted to $14,768,000 against $8,675,000 in FY19.

Financial Summary (Source: Company Reports)

Focus on Shareholders Wealth: The company is focused on sustained growth in shareholder wealth and delivering constant or increasing return on assets.

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $10.14 Mn. The stock of AGH has provided positive returns of 32% and 54.69% in the last one and three months, respectively. AEI has an EV/Sales multiple of 21.8x as compared to the industry average (Pharmaceuticals) of 35.9x on TTM basis. In addition, the stock is trading at a price to book value multiple of 2.4x against the industry average (Pharmaceuticals) of 8.5x on TTM basis. On the technical analysis front, the stock price of AGH has a support level of ~$0.305 and a resistance level of ~$0.670.  Hence, considering the receipt of standard processing licence, growth in top-line, and returns in past months, we give a “Hold” rating on the stock at the current market price of $0.470 per share, down by 5.051% on 1^st October 2020.

AGH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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