Stocks’ Details

Advance Nanotek Limited

Reinstatement of Tax Losses: Advance Nanotek Limited (ASX: ANO) is the manufacturer and developer of advanced material products. The market capitalisation of the company stood at ~A$375.56 Mn as of 27^th June 2019. As per the latest release, the Board of the company had concluded its audit planning with external auditors for FY19. The issue which was raised by the auditors was the current accounting treatment of prior tax losses. Considering the current worldwide regulatory awareness of the use of harmful chemicals, it can be said that the FDA is progressively banning particular chemicals, as supply of zinc oxide is increasing and the demand for zinc oxide should continue to grow for several years. Considering this, the Board of the company admits the issue raised by the auditors, that it is very likely the company would be profitable in the coming years and agree that the full amount of the tax losses should be reinstated in FY 2019. The increase in manufacturing capacity of zinc powder to 2,200 tones p.a from late 2019, well in excess of current order intake.
 

Total Annual Sales Revenue by Product (Source: Company Products)
 
What to Expect: The current profit after tax for the first three months of the 2H FY19 is around $1.8Mn. The estimated income tax benefit of its R&D return is around $220,000 and it would contribute to the Q4 FY19 result. The company is committed to developing additional powders and dispersions by using alternative natural ingredients in 2019 / 2020.
 
Stock Recommendation: The Board of the company is concerned with the performance of its pre-existing distributors in Europe and committed to improving the number of European chemists. The net margin of the company stood at 36.1% in 1H FY19 against the industry median of 3.0%, which showcases the company’s capability to convert its topline into the bottom line in comparison to the broader industry. The return on equity ratio stood at 23.2% as compared to the industry median of 3.6%. On the stock’s performance front, the stock price of the company increased by 96.35% and 629.94% in the time span of three months and six months, respectively. As per ASX, the stock is trading closer to its 52 weeks higher levels. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$6.800 per share (up 5.263% on 27^th June 2019).
 

Avita Medical Ltd

Trading Slightly Towards 52-week Higher Level: Avita Medical Ltd (ASX: AVH) is involved into the manufacturing, development and distribution of innovative products for the regenerative medicine and respiratory markets. The market capitalisation of the company stood at ~A$794.56Mn as of 27^th June 2019. Recently, the company announced that Phillip Asset Management Ltd atf BioScience Managers Translation Fund I ceased to be the substantial holder of the group since 11^th June 2019. The company at 24th annual World Congress of Dermatology Meeting announced new preliminary RECELL® Autologous Cell Harvesting Device data.
 
A look at Corporate Presentation: The company presented the results for nine months ended 31^st March 2019. The total estimated contract value stood at US$80.1 Mn for the period. The total revenue stood at A$11.525Mn in nine months ended March 31, 2019 as compared to A$6.194 Mn in the prior corresponding period. The net cash used in the operations stood at A$16.884 Mn (as depicted by the below picture).
 

Financial Overview (Source: Company Reports)
 
Future Prospects: The company stated that RECELL is positioned for successful adoption in US Burns during 2019. Also, there are expectations that the company is in a decent position to make deployments towards the operational capabilities as evident from the current ratio of 1H FY 2019.
 
Stock Recommendation: The gross margin of the company stood at 70.2% in 1H FY19, reflecting a YoY growth of 11.2%. The current ratio of the company stood at 6.97x in 1H FY19 in comparison to the industry median of 4.55x. This implies that the company is in a sound position to address its short-term obligations. With respect to stock’s past performance, it produced a return of 60.38% and 444.87% in the time span of three months and six months, respectively and is trading slightly towards its 52-week higher level of $0.540. Hence considering the aforesaid facts and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of A$0.405 per share (down 4.706% on 27^th June 2019).
 

PPK Group Limited

Placement of Shares:PPK Group Limited (ASX: PPK) operates into manufacturing, support and innovation of underground coal mining equipment. The market capitalisation of the company stood at ~A$212.82 Mn as of 27^th June 2019.

Recently, the company updated the market that it had concluded the issuance of 1,100,000 fully paid ordinary shares at the issue price of $2.50 per share under a placement to professional or sophisticated investors in order to raise a total of $2.75 Mn. These funds would be used for debt reduction, utilised to ensure the continued growth of PPK’s mining services business and applied to other investment income generating areas.

Financial Highlights (Source: Company Reports)
 
In the 1H FY19, the company reported a net profit after tax of $0.905Mn post restructuring costs of $0.281Mn from a review of its Rambor/Firefly business unit located in Mt Thorley. The company had reduced its cash outflow from its operating activities to $0.151Mn.
 
Future Aspects: The company expects the Mining Equipment sector to continue to improve its financial performance for the remainder of this financial year and continue to deliver decent financial returns in the future. PPK expects to witness a statutory profit for FY19 and potential positive free cash flow generation from operations.
 
Stock Recommendation: The company continues to review other investment opportunities that would enhance and continue to diversify the earnings of the group. The current ratio of the company stood at 2.39x in 1H FY19 against the industry median of 1.62x, which showcases that the company is in a decent position to address its short-term obligations. With respect to the stock’s past performance, it witnessed a rise of 222.50% and 405.88% in the time period of three months and six months, respectively. As per ASX, the stock is trading closer to its 52 weeks higher levels. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$2.780 per share (up 7.752% on 27^th June 2019).
 

Comparative Price Chart (Source: Thomson Reuters)      

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