Stocks’ Details
 

Archer Materials Limited

 
New Agreement with IBM:Archer Materials Limited (ASX: AXE) is a materials technology company developing materials in quantum computing, biotechnology,and lithium-ion batteries, and exploring for minerals in Australia.
 
Key Updates:In a recent announcement, the company updated that it has issued 100,000 fully paid ordinary shares following the exercise of unlisted options, having an exercise price of $0.1929 each and expiry date of 31 March 2023. In another recent update, the company informed that it has signed an agreement with IBM to advance quantum computing and devise solutions for the widescale adoption of the technology. The company also informed the market that its European patent applicationto protect and commercialise intellectual property associated to the ¹²CQ quantum computing chip materials technology has moved to the substantial examination stage in Europe.
 
Q3FY20 Highlights:During the quarter ended 31^st March 2020, the company achieved a major milestone for its graphene-based biosensor technology with the lodgement of 100% owned international patent application. Drilling at the Franklyn and EP Projects confirmed the presence of high value halloysite and kaolin, significantly increasing the commercial development potential of the projects. During the quarter, cash used in operating activities stood at ~$0.33 million.
 

Operating Cashflow (Source: Company Reports)
 
Stock Recommendation:The stock of the company gave whopping returns of 188.24% in the last month. In the last one year, the stock has gained 580.56%. Currently, the stock is trading near its 52-week high level of $0.535. The recent agreement with IBM will provide the company with added competive advantage and is expected to drive growth across the platform. The company remains well capitalised with ~$2.2 million cash and no debt, at the end of Q3FY20. On TTM basis, the stock has a Price to Book Value multiple of 5.5x, as compared to the industry median (Basic Materials) of 2.8x. Considering the price movements and current trading levels, we suggest investors to wait for better entry levels and give an “Expensive” rating on the stock at the current market price of $0.435, down 11.224% on 13^th May 2020.
 

Z Energy Limited

Recent Equity Raising to Improve Financial Flexibility:Z Energy Limited (ASX: ZEL) is a supplier of fuel to retail customers and large commercial customers, including airlines, trucking companies, mines, etc.

In a recent announcement, the company updated that it has successfully completed the NZ$290 million fully underwritten Placement of new shares. Proceeds from the placement will be utilised to pay down debt, to improve balance sheet and liquidity, and to support the resilience of the business against potential market conditions.

FY20 Results: During the year ended 31^st March 2020, the company reported a net loss of NZ$88 million, as compared to a profit of NZ$186 million for the previous corresponding period, representing the negative impact of several factors including lower retail fuel margins and reduced refining margins.Net operating cash flow for the year stood at NZ$159 million, down 41% on pcp.


Financial Summary (Source: Company Reports)

Outlook: The company expects continued weakness in refining margins, with a global over-supply of various refined product, mainly Jet. Due to the uncertainty surrounding COVID-19, the company has not provided any guidance for FY21. Moreover, the company updated that it will not pay any dividends untilafter 30 September 2021 and expects to resume shareholder distributions in FY22.

Valuation Methodology:EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The stock of the company corrected by 30.05% and 40.40% in the last 3 months and 6 months, respectively. Currently, the stock is trading near its 52-week low level of $2.440. To mitigate the impact of COVID-19, the company has resorted to significant one-off and structural cost reductions and a rigorous focus on capital expenditure. Moreover, the recent capital raising will provide added resilience to potential market conditions for the foreseeable future. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with limited upside (in percentage terms). For the purpose, we have considered peers such as Cooper Energy Ltd (ASX: COE), Senex Energy Ltd (ASX: SXY), Worley Ltd (ASX: WOR), etc. Considering the mixed scenario depicted by the aforesaid factors, we have a wait and watch stance on the stock at the current market price of $2.85, down 4.362% on 13^th May 2020.

Valmec Limited

Substantial Addition to Order Book:Valmec Limited (ASX: VMX) is a diversified energy and infrastructure services group in Australia, providing equipment, construction, commissioning and maintenance services to the oil and gas, resources and infrastructure sectors. The company recently updated that it has been awarded several new projects in Western Australia and Northern Territory, increasing the Order book by approximately $23 million. Due to the uncertainty around the spread of COVID-19, the company has withdrawn its full year FY20 guidance originally issued on 11 September 2019.

During the first half ended 31^st December 2019, the company reported sales revenue amounting to $70.1 million, reflecting its strongest ever revenue generation for a six-month period since inception. This came on the back of a strong order book which will continue to deliver further growth in the years ahead.


1HFY20 Income Statement (Source: Company Reports)

Outlook: The company expects the demand for its services across onshore gas and water utilities and gold sector infrastructure, to remain robust. Moreover, it is preparing to capitalise on its growing pipeline of opportunities, as the current conditions stabilise.

Stock Recommendation:The stock of the company corrected by 42.11% and 38.89% in the last 3 months and 6 months, respectively. Currently, the stock is trading near its 52-week low level of $0.150. The company has a market capitalisation of ~$20.74 million, with ~125.72 million outstanding shares. The company has a robust order book, with larger upstream energy and infrastructure projects expected to be committed before 30 June 2020. Considering the performance during 1HFY20, recent increase in order book, withdrawal of FY20 guidance and current trading level, we have a watch view on the stock at the current market price of $0.165 as on 13^th May 2020.
 
 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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