Stocks' Details

Prospect Resources Limited

Flotation Testwork Almost Doubles Petalite Recovery: Prospect Resources Limited (ASX: PSC) is engaged in the exploration, evaluation, and development of mineral resources. As on 29 July 2020, the market capitalization of the company stood at ~$40.03 million. The company has recently reported significant improvements to the petalite lithium recovery for its 87% owned Arcadia Lithium Project in Zimbabwe. With the company's ability to nearly double its petalite recovery, operating cost per tonne of petalite and spodumene is expected to drop.

Quarterly Update: During the quarter ended 30 June 2020, the company strengthened its balance sheet via a successful rights issue and managed the primary syndication of a US$143 million project finance debt facility. PSC finished the quarter with a cash balance of $1.698 million and funding commitment of US$10 million. In the same time span, it used $849,000 for operating activities.

Cash Flow from Operating Activities (Source: Company Reports)

Key Risks: The activities of the company are exposed to a variety of risks, including interest rate, market, credit, and liquidity risk. The company may also be impacted by the geopolitical risks because of its unique position within the lithium market in multiple places.

Stock Recommendation: COVID-19 has substantially reshaped the global landscape and has slowed down progress in the company's activities. As per ASX, the stock of PSC gave a negative return of 24.12% in the last six months but a positive return of 86.67% in the past one month. It is also trading close to the average 52-weeks' trading levels. Considering the current trading levels, attractive returns in the past one month, and risks due to the global pandemic, we suggest investors to book profits on the stock and recommend a "Sell" rating at the current market price of $0.140 on 29 July 2020.

REFFIND Limited

Loyyal Investment Update: REFFIND Limited (ASX: RFN) provides customers a cloud-based Saas app that enables effective communication. As on 29 July 2020, the market capitalization of the company stood at ~$3.73 million. The company had invested US$1,500,000 worth of Series A-3 Preferred Stock giving the 4,670,714 shares with an immediate equity interest of 9.38% and USD800,000 worth of 2-year convertible promissory notes, in Loyyal Corporation. Loyyal has filed for bankruptcy protection due to adverse financial impacts from COVID-19. Reffind presently intends to bid for the assets of Loyyal. If successful, Reffind and the consortium would continue to operate the business, subject to funding and improvement in trading conditions, at the appropriate time, put Loyyal on a path to IPO.

Interbio Agreement Discontinued-Wooboard Update: The company has mutually agreed to discontinue the proposed licencing agreement with International Biometrics Pte Ltd. The decision will increase the company's focus on commercial opportunities, allowing it to fast-track the commercial rollout of an enhanced Wooboard solution.

Operational and Financial Highlights: The onset of the COVID-19 crisis resulted in the rise of remote working, enabling work from home environments. The Company believes the current environment will be conducive to a lasting shift in traditional business models and result in longer-lasting trends in the remote capabilities of enterprises. During 1H20, the company reported a decline of 33.9% in revenue to $35,992 and an increase of 6.5% in loss from ordinary activities to $696,809.

1H20 Financial Highlights (Source: Company Reports)

Key Risks: In order to maintain or adjust the capital structure, the group may adjust the payments of dividends to shareholders, thus reducing returns. The group's activities expose it to a variety of financial risks, including market risk (foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk.

Stock Recommendation: As per ASX, the stock of RFN gave positive returns of 100% and 50% in the last three and six months, respectively. Currently, the stock is trading close to its 52-week low of $0.001. On a TTM basis, the stock is trading at an EV/Sales multiple of 21.8x, higher than the industry median (Software and IT services) of 5.4x. Considering the current trading levels, volatility in returns, low market capitalization and increased uncertainty due to the global pandemic, we recommend a "Sell" rating on the stock at the current market price of $0.003 on 29 July 2020.

MaxiTRANS Industries Limited

Impact of COVID-19: MaxiTRANS Industries Limited (ASX: MXI) is a supplier of truck and trailer parts to the road transport industry. As on 29 July 2020, the market capitalization of the company stood at ~$24.99 million. In the second half of February and through March, the company saw a decline in revenue and a significant drop in Trailer Solutions orders due to reduced freight volumes. This was mainly due to the uncertainty surrounded by COVID-19 pandemic.

Half Year Results: During the half-year, revenue from continuing operations of the company went down by 11.8% and Trailer Solutions revenue has declined $26.0 million or 19.9%, in-line with the overall decline in the addressable market in 1H20. The Group has implemented several costs saving initiatives, including staff redundancies which have reduced the operating costs by $10.6 million. In the same time span, the company made a reduction of $1.8 million in its net debt.

Half Year Results (Source: Company Reports)

Key Risks: The restrictions from lockdown throughout the country resulted in higher variability in supply chain and absence of staff. The company is also exposed to key operational risks including manufacturing process inefficiency, IT systems, quality and delivery schedule, higher competitiveness, and failure to retain customers.

Stock Recommendation: Whilst MaxiTRANS Industries Limited performed in-line with expectations throughout January and most of February, COVID-19 has impacted both the Parts division and Trailer Solutions. The COVID-19 virus is a risk to the Group due to the effect on the broader economy. As per ASX, the stock of MXI gave a negative return of 37.21% in the past six months but a positive return of 12.5% in the last one month. On a TTM basis, the stock is trading at an EV/EBITDA multiple of 18x, higher than the industry median (Machinery, tools, heavy vehicles, trains, and ship) of 4.8x. Considering the current trading levels, volatile returns, increasing risks of COVID-19 on the company's operations and decline in financial performance, we recommend a "Sell" rating on the stock at the current market price of $0.135 on 29 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclosure: Reffind Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

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