Stocks’ Details 

Aeris Environmental Limited

Turnaround of Profits in FY20: Aeris Environmental Limited (ASX: AEI) develops, manufactures and markets environmentally friendly technology solutions. The Company's principal activities include research, development, commercialization of technologies, global distribution of the range of products, provision of heating, ventilation, air conditioning and refrigeration (HVAC/R) hygiene and remediation technology. AEI has doubled its revenues in FY20 to $14.67mn from $6.98mn in FY19 and has started registering profits in FY20 to $1.98mn from a loss of $3.63mn in FY19.

Five-Year Financial Analysis (Source: Company Report, Thomson Reuters)

Growing Focus in the USA: HVAC hygiene is a growing focus in the USA, with airborne transmission of COVID-19 recognized as a vector of infection. Aeris’ relationship with Motily continues to grow, with a new three-year contract signed with the US Army for the use of the Company’s products in over 45,000 individual HVAC assets. Aeris’ ActiSan hand sanitiser is now USFDA approved and will soon launch into the US market.

Quarterly Update: Revenues in H1FY21 impacted by Covid-19 and marginally down at $5.1mn, Gross Margins were at 40% during the same period which is lower than average margins. AEI has registered a cash receipts of $3.33 million in December quarter, taking the total cash receipts to $8.09 million for H1FY21.

Outlook: AEI is focusing on growing its annuity revenue base and margins in Australian, US and SE Asia markets through launching its products. The company is looking to get regulatory approvals in Middle East, India, and Canada for opening orders. The opportunities for Aeris continue to strengthen, with each of its product portfolios demonstrating growth and market acceptance. The Company is in material discussions with potentially largescale market opportunities covering a variety of geographies and accessing both business-to-business and business to-consumer high-volume channels.

Stock Recommendation: In the last one month, AEI has corrected by 3.39%. The stock is currently trading below the average 52-week price level range of $0.280-$0.870. On the technical analysis front, the stock has a support level of ~$0.281 and resistance of ~$0.384. Considering the company’s decent performance in FY20, ongoing focus on US markets and current trading level, we give a “Speculative Buy” rating on the stock at the current market price of $0.280, down by 1.755% as on 11 Feb 2021.

Quickstep Holdings Limited

Well Equipped with Manufacturing Facilities: Quickstep Holdings Limited (ASX: QHL) is a leading composite component manufacturer with advanced composite solutions capabilities. QHL is Australia’s leading independent advanced composite manufacturer that is capable of almost all facets of composite parts production. Located in Texas, QHL is centrally located to interface with existing and future US Defense and Commercial Aerospace customers.

Five-Year Financial Analysis (Source: Company Report, Thomson Reuters)

MQ-4C Triton, a potential opportunity for QHL: While QHL is already Northrop Grumman’s largest Australian supplier for the F-35 programme (21 fuselage composite components contract), it is currently not involved in the company’s flagship air defence programme, the MQ-4C Triton but see it as a potential opportunity going forward.

Vaulta and QHL Sign Memorandum of Understanding: Vaulta, the new Australian battery casing technology company based in Brisbane and Quickstep Holdings Limited, Australia’s largest independent aerospace advanced composites manufacturer, has signed of a Memorandum of Understanding (MOU). As per the terms of MOU, both companies will work together to develop new products and capabilities for the high growth market in electric-powered land and air vehicles 

Valuation Methodology: EV/Sales based Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: In the last 3 months, the stock of QHL has increased by 3.70% on ASX. The stock is currently trading below the average 52-week price level range of $0.055-$0.145. On the technical analysis front, the stock has a support level of ~$0.077 and resistance of ~$0.09. We have valued the stock based on EV/Sales multiple relative valuation and have arrived at a target price of low single-digit upside (in % terms). For the purpose we have taken peers Austal Ltd (ASX: ASB), Orbital Corporation Ltd (ASX: OEC), SRG Global Ltd (ASX: SRG) etc. Considering well equipped manufacturing facility, recent MOU with Vaulta, current trading level, and valuation, we give a “Speculative Buy” rating to the stock at the current market price of $0.084, up by 3.703% as on 11 Feb 2021.

Pearl Global Limited

Decent Production in Q1FY21– Burner Fuels: Pearl Global Limited (ASX: PG1) is a waste technology company that utilises its technology to minimise the wastage of tyres while operating in a low emission environment with no hazardous by-products. Hydrocarbons is rich in hydrogen, the gases produced also have the potential to be converted into electricity for multiple external applications as well as self-powering of Pearl TDUs. Pearl has received a government grant from the Queensland Government to convert its clean gases into electrical energy. There has been a consistent increase in quarterly production for PG1 products. 

Quarterly Production (Source: Company reports)

Issuance of Additional Shares and Change in the Interest of Substantial Holder: As per the company report, PG1 has issued 16.66mn shares at the rate of 9 cents to raise $1.5mn and there has been a change in the interest of substantial holder. ROC Alternative Investment Pty Ltd, FSS Trustee Corporation as trustee of the First state Superannuation Scheme and ROC Capital Pty limited as trustee for ROC ES Private Equity Trust has a present voting power of 22.46% equivalent to 83,569,535 votes compared with 66,902,868 votes previously.

Outlook: As per the company report, the company expects to deliver greater growth in the March quarter and over the balance of CY21 as attitudes towards the environment and waste policy at all levels of Government continue to evolve to favor pearl and its product lines. The company is well-capitalised to drive scalable growth with $6.43 million cash at 31 December 2020.

Stock Recommendation: In the last 1 month, the stock of PG1 has provided a return of 8.79% and in the last three months, it has provided a return of 4.21%. The stock is currently trading below the average 52-week price level range of $0.060-$0.155. On the technical analysis front, the stock has a support level of ~$.083 and resistance of ~$0.118. Considering the rise in production level, decent Q2FY21 performance, current trading level, and recently completed $5 million tranche 1 share placement, we give a “Speculative Buy” rating on the stock at the current market price of $0.099, up by 1.02% as on 11 Feb 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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