Stocks’ Details

Dotz Nano Limited

Signing of Commercial Agreement: Dotz Nano Limited (ASX: DTZ) is involved in the development, manufacturing and commercialisation of graphene quantum dots. The market capitalisation of the company stood at A$44.03 million as on 23^rd July 2020. Recently, the company reached a US$1,000,000 commercial agreement with Universal Exports Group for supplying its ValiDotz™ security markers. The initial order is for the ValiDotz™ products to be applied to 30,000,000 masks with a follow-up order of up to 70,000,000 masks. This agreement proved as a direct outcome of the recent strategic focus and efforts initiated by the Board and Management. During Q1 FY20, the company witnessed a challenging operational environment because of COVID-19, causing extensive trade and travel restrictions that have impacted business operations. Over the quarter, the company spent US$669k on operating activities. At the end of the quarter, the cash balance of the company stood at US$578,000.

Cash Flow (Source: Company Reports)

Focus for Future: The company is focused on customized research and developments in order to deliver financial outcomes. It is also focused on commercializing the technology.

Key Risks: The company is mainly exposed to market risk (including fair value and interest rate risk) and cash flow interest rate risk, credit risk and liquidity risk. The interest rate risk is influenced by the rise and fall of interest rates. Credit risk arises from the default by counterparties on their contractual obligations while liquidity risk comes from the difficulty in settling its debts or meeting its obligations related to financial liabilities.

Stock Recommendation: Gross margin of the company stood at 39.0% in FY19, reflecting a fall of 28.9% on a YoY basis. On a TTM (Trailing Twelve Months) basis, the stock of DTZ is trading at a price to book value multiple of 23.8x as compared to the industry average (Electronic Equipment & Parts) of 9.9x. The stock of DTZ has moved up by 204.35% and 125.81% in the past three and six months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.180. Hence, in light of the aforementioned facts, and current trading levels, we give a “Sell” recommendation on the stock at the current market price of $0.140 per share on 23^rd July 2020.

Advanced Braking Technology Ltd

Decent Sales in June 2020: Advanced Braking Technology Ltd (ASX: ABV) is engaged in the development and commercialisation of the wet brake technology. The market capitalisation of the company stood at $13.27 million as on 23^rd July 2020. In a recent operational update, the company stated that temporary deferral of sales orders in the month of April and May 2020 has impacted the business. However, decent sales in the month of June 2020 has resulted in total operating sales for Q4 FY20 to stand at $2.1 million (unaudited), reflecting a rise of 11% over Q3 FY20. Total operating sales for FY20 stood at $8.35 million (unaudited), up 22% over FY19. These results showcased the strong performance of business despite the broader economic conditions. The below picture gives an overview of revenue for 1H FY20:

Revenue from Continuing Operations (Source: Company Reports)

Agreement with VEEM Ltd: Previously, the company reached a Technology Licence Agreement with VEEM Ltd to provide a braking solution for the Hawkei PMV-L project. This agreement will provide ABT with the ability to engage with other international specialised fleet providers with its customised design solutions.

Improved FY20 Results Expected: The company is expecting an improved FY20 result on the 1H FY20, subject to year-end adjustments and the external audit.

Key Risks: The company is exposed to key financial risks such as market risk, liquidity risk, and credit risk, which arises from the use of financial instruments. To manage liquidity risk, the group maintains adequate cash reserves through share issues, convertible note issues, debtor finance, secured bank lending and asset finance.

Stock Recommendation: Debt to equity of the company stood at 0.15x in 1H FY20 as compared to the industry median of 0.12x. On TTM basis, ABV is trading at EV/EBITDA multiple of 56.3x, higher than the industry average (Automobiles & Auto Parts) of 21.1x. The stock of ABV is trading at a price to book value multiple of 3.6x against the industry average (Automobiles & Auto Parts) of 2.0x, on a TTM basis. The stock of ABV has moved up by 66.67% and 59.09% in the past one and three months, respectively. Therefore, considering the movement in the stock within past months and risk associated with the business, we suggest investors to book profit and give “Sell” recommendation on the stock at the current market price of $0.034 per share, down by 2.857% on 23^rd July 2020.

Heramed Limited

Extended Collaboration with Mayo: Heramed Limited (ASX: HMD) is in the development, manufacturing and distribution of fetal heartbeat monitors and other pregnancy-related solutions. The market capitalisation of the company stood at $11.67 million as on 23^rd July 2020. Recently, the company announced that it has extended its collaboration with Mayo Clinic, with a new agreement for the development of its HeraCARE pregnancy management platform, which includes an equity investment to support the project. As per the terms of the agreement, Mayo Clinic would provide a USD$100,000 investment in the form of project funding, expert medical know-how and guidelines in the field of prenatal care, as well as a license to Mayo’s library of educational content in the space. HMD will issue 1,186,153 Shares to Mayo as consideration for entering into this agreement. During Q1 FY20, net operating cash outflows amounted to around US$828K, comprised of advertising and marketing expenditure of US$102K, research and development expenditure of US$26K and staff costs, administration and corporate expenditure of US$679K.

Cashflow From Operating Activities (Source: Company Reports)

Outlook: The company is well placed to continue to deliver material progress in the remainder of CY20 following a strong start to 2020 and support by a global shift towards the adoption of Telehealth. The material progress primarily includes completion of development and initial launch of HMD proprietary fully integrated platform, HeraCARE.

Key Risks: The company is mainly exposed to market risk, which arises from the use of interest-bearing financial instruments. In addition, the business is also sensitive to foreign currency risk, influenced by fluctuation in foreign exchange rates. Moreover, HMD is exposed to credit risk and liquidity risk.

Stock Recommendation: On a TTM basis, HMD is trading at an EV/Sales multiple of 25.4x, as compared to the industry median (Healthcare Equipment & Supplies) of 6.1x. At the end of March 2020 quarter, the cash and cash equivalents of the company stood at US$1,194,000. During FY19, the company reported total debt of US$0.24 million, reflecting a growth of 53.3%. Debt to equity ratio of the company stood at 0.10x in FY19 as compared to the industry median of 0.03x. Hence, in light of more leveraged balance sheet and key risks, we give a “Sell” recommendation on the stock at the current market price of $0.086 per share, down by 4.444% on 23^rd July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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