Electro Optic Systems Holdings Limited

EOS Details

Q3FY21 Financial Performance: Electro Optic Systems Holdings Limited (ASX: EOS) specialised in developing, manufacturing and commercialising technologies used in aerospace and defense such as laser satellite tracking systems, microwave communications defense missiles globally.

• The company has received receipts from customers of $23.98 million in Q3FY21, a decline from $65.54 million in the previous quarter.
• The company has reported net cash used in operating activities were ~$22.45 million in Q3FY21, against net cash inflow from operating activities of ~$17.32 million in Q2FY21.
• In Q3FY21, it has reported an increase in R&D expense to $4.23 million and a rise in advertising and marketing cost to $523k.
• The cash position of the company stood at $54.92 million as of 30 September 2021 vs $51.11 million as of 30 June 2021, which is intended to use in expanding its current defence and space businesses.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Technology Risk- The company is exposed to cybersecurity risk, technology risk, fraud, threats. Therefore, the company should invest in technology to keep it updated and secured.
• Liquidity Risk- The company is exposed to liquidity risk to encounter difficulties settling its debts and meeting its financial obligation.

Outlook:

• The management has revised its guidance for FY2. It now expects revenue to be between $215 to $220 million, underlying EBIT before SpaceLink cost is expected to be in the ambit of $4 to $8 million, whereas Underlying EBIT after SpaceLink is in the range of -$11 to -$15 million.
• The company focuses on staff support and retention, capacity maintenance, supply chain sustainment to manage the COVID-19 disruption.
• The company expect expenses to rise around $19 million in FY21, and further, it continues to invest in the SpaceLink business, which might drive growth in the near-term future.
• The Board expects an improvement in its earnings due to an increased order for the Space and Communications Systems divisions.
• Recently, the company has announced to conduct a webinar on the progress of its subsidiary SpaceLink on 29 October 2021.

Valuation Methodology: EV/EBITDA 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: Recently, the company has received $65 million of cash receipts, including $35 million of working capital. Additionally, the company’s subsidy SpaceLink has proceeded its contract with OHB to manufacture and deliver the first constellation of four satellites and the initial tranche of the project. The stock of EOS is currently trading below its average 52-weeks' levels of $3.260-$6.920. The stock of EOS gave a negative return of ~7.90% in the past one month and a negative return of ~34.74% in the past nine months. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers’ median EV/EBITDA multiple, considering the significant rise in Commonwealth defence activity, increase in orders in Space and Communications Systems divisions, etc. For the purpose of valuation, peers such as Quickstep Holdings Ltd (ASX: QHL), Orbital Corporation Ltd (ASX: OEC), Austal Ltd (ASX: ASB) and others have been considered. Considering the current trading levels, indicative upside in valuation, investment in expansion, strategic COVID-19 management, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $3.340, down by 2.053% as on 28 October 2021.

EOS Daily Technical Chart, Data Source: REFINITIV 

Advance NanoTek Limited

ANO Details

Chairman’s Correction letter: Advance NanoTek Limited (ASX: ANO) engages in developing and manufacturing advanced material products such as aluminium oxide powder and zinc oxide dispersions and powder for use in the personal care sector globally. Recently, the company’s chairman notified it misstated the comparative year as FY19 instead of FY20.

FY21 Financial Performance-

• The company has posted a decline in its revenue by 63.69% to $6.52 million in FY21, compared to $17.96 million in FY20, caused by the global travel restrictions and numerous lockdowns in various countries.
• Operating Cashflow in FY21 stood at $1.39 million, an increase from $120k in FY20.
• Additionally, the company has reported a decreased net profit after tax to $32k in FY21 against $5.32 million on a pcp basis, impacted due to increase in operating cost and lower revenue.
• The cash position of the company stood at $95k as of 30 June 2021 vs $260k as of 30 June 2020.

Inventories Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Demand Risk- The company’s sunscreen sales were impacted due to travel restrictions during the US and European summer season. If the uncertainty continues, it might affect ANO’s financials going forward.
• Financial Risk- The company might face the financial risk to further invest in its strategic growth plan, which might impact its future growth.

Outlook:

• The company has announced to conduct an Annual General Meeting on 5 November 2021.
• The management continues to invest in production equipment and set up costs to serve a better and variety of sunscreens in the near-term future.
• The company is on track to invest in R&D, which might attract an immediate tax write-off in FY21 and further, it might also rise in the R&D non-cash incentive for FY22.

Stock Recommendation: Recently, the company's director, Geoff Acton, has disposed 5,000 ordinary shares for a total value of $18,500. The stock of ANO is currently trading close to its 52-weeks' low level of $3.3. The stock of ANO gave a positive return of ~11.65% in the past one month and a negative return of ~25.10% in the past nine months. On a TTM basis, the stock of ANO is trading at an EV/Sales multiple of 7.7x, lower than the industry average (Personal & Household Products & Services) of 11.4x, thus seems undervalued. Considering the current trading levels, strategic investment, increase in R&D, optimistic outlook, current trading level, valuation on a TTM basis, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $3.500, as of 28 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ANO Daily Technical Chart, Data Source: REFINITIV

Zoono Group Limited

ZNO Details

Q1FY22 Financial Performance: Zoono Group Limited (ASX: ZNO) engages in the development, research, and distribution of a range of antimicrobial products and serves airlines, manufacturing, healthcare, childcare, and other industries globally.

• The company has recorded an invoice sale of NZ$7.5 million in Q1FY22, including delivered sales of NZ$4.7 million and NZ$2.8 million of invoiced sales (unshipped orders).
• The company has received receipts from customers were NZ$4.86 million in Q1FY22, an increase from NZ$3.07 million in the previous quarter.
• In Q1FY22, the company has reported an operating cash flow of NZ$2.07 million against a cash outflow of NZ$2.98 million in Q4FY21.
• The cash position of the company stood at NZ$7.0 million as of 30 September 2021 vs NZ$4.89 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Supply Risk- The company has faced challenges in its supply chain, which has impacted meeting the customer's requirements and further disruption might affect its financials.
• Competition Risk- The company is exposed to stiff competition risk. Therefore, it requires strategic marketing and should offer a range of products.

Outlook:

• The company is on track to acquire new customers and grow top-line sales while protecting a decent margin that might positively impact its earnings.
• The company focuses on expanding its uses in UK schools and increases its advertising and marketing to drive growth. Further, it expects a new three-year contract with UK Public Transport in near term future.
• The Russian distributors have advised giving a regular order in the 12 months, which might drive growth in the company's revenue.
• The company will conduct a virtual Annual General Meeting on 25 November 2021.

Stock Recommendation: On 27 September 2021, the company has issued 125,000 ordinary shares. The stock of ZNO is currently trading below its average 52-weeks' levels of $0.380-$1.755. The stock of ZNO gave a positive return of ~11.11% in the past one month and a negative return of ~61.86% in the past nine months. On a TTM basis, the stock of ZNO is trading at a Price/Book multiple of 3.8x, lower than the industry average (Personal & Household Products & Services) of 11.4x, thus seems undervalued. Considering the current trading levels, increased demand in the EU market, decent balance sheet, optimistic outlook, current trading level, valuation on a TTM basis, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.440, down by 2.223% as of 28 October 2021.

ZNO 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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