Stocks’ Details
 

Gage Roads Brewing Co Limited

Strong Sales Recovery in May and June:Gage Roads Brewing Co Ltd (ASX: GRB) is engaged in brewing, packaging, marketing and selling of beverages. The company recently announced that Good Drinks has partnered with San Miguel Brewery Inc. to represent some of its brands in Australia. San Miguel is one of the world’s largest breweries with its footprint across more than 50 countries and a significant brand presence in South East Asia, Europe and the Americas. Through this partnership, the company will be able to support two objectives under the Good Drinks strategy, which includes, becoming an independent supplier to the national beer market and accessing broader categories of the liquor market.

New Borrowing Facility: To align with its expanding working capital requirements under the Good Drinks strategy, the company has recently announced a new banking facility with its banking partner CBA, wherein its existing Trade Finance facility with a limit of $4.5 million has been converted into a Borrowing Base facility with a limit of $12.0 million, while maintaining existing Bank credit facilities.The new facility has unlocked an additional $7.5 million in funds to support GRB’s growth in FY21 and beyond.


Summary of Credit Facilities (Source: Company Reports)
 
Business Update: In a business update dated 18^th June 2020, the company notified about a strong sales recovery in May and June outperforming the market and expects this to continue in FY21. Newly commissioned packaging lines resulted in cost savings, with H2 pack volumes in line with pre-COVID expectations. The company achieved stronger business partnerships with key retailers in the Good Drinks business, with total Good Drinks brands up 25% YTD.
 
Outlook: With strengthened customer partnerships, strong brand health and easing of COVID-19 restrictions, the company is optimistic about delivering on its strategic goals in FY21.National core ranging of new products has locked in sales uplift for FY21. Moreover, the company plans to build strong customer relationships through a dedicated sales team and set the foundation for the next financial year.
 
Key Risks: The company’s activities expose it to certain financial risks, including currency and cash flow interest rate risk, credit risk and liquidity risk. Credit risk is concentrated in trade receivables with respect to national wholesalers and Woolworths Limited, through their large purchases. Credit risk also relates to cash and cash equivalents and financial institutions. Liquidity risk arises from a shortage of cash and funding and the company seems well-funded with its credit facilities with the CBA. Moreover, it has policies in place to manage other risks and maintain financial stability.
 
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 gave positive returns of 20.83% in the last three months and is currently inclined towards its 52-week low level of $0.035, offering opportunity for accumulation. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Considering the sales performance in May and June, progress in the Good Drinks Strategy, healthy customer relationships, cost savings, and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.057 on 2^nd July 2020.
 

Krakatoa Resources Limited

Application for Diamond Drilling Program at the Turon Project:Krakatoa Resources Limited (ASX: KTA) is predominately focused on gold exploration in the world-class Lachlan Fold Belt, NSW across two projects, namely Belgravia and Turon.
The company recently lodged an application with the NSW Resources Regulator to conduct a diamond drill program at its 100% owned Turon Project. The application seeks approval for up to 1,770 meters of diamond drilling at several exciting shallow gold targets situated within the Box Ridge and Quartz Ridge line of workings.Drilling is expected to commence in July, subject to approval from the NSW Resources Regulator.

Targets for the Diamond Drilling Program:On 26^th June 2020, the company notified about the shallow RAB drill program on the Quartz Ridge Mine, that identified several highly anomalous gold intercepts with results up to 10 meters @ 1.64g/t gold from the surface to end of the hole. Another target for the drilling program includes The Dead Horse Reef Mine where past explorers report numerous significant gold grades from chip and mullock sampling. Two priority Deep Ground Penetrating Radar (DGPR) targets outlined at the historical Britannia Mine, as per an announcement dated 23^rd June 2020, also form a target under this program.

March Quarter Highlights: During the quarter, the company was focused on systematic exploration at the Company’s 100% owned Belgravia Project. The aircore drilling program averaged 18 meters depth per hole revealed anomalous gold and copper results, boosting confidence in the exploration approach at the project. The company completed work on less than half of the Bell Valley target, with five more substantial targets in the pipeline. 

During the quarter, the company completed $1.3 million placement to professional and sophisticated investors. Cash used in operating activities stood at $446k, comprising exploration & evaluation expenditure of $282k. Cash and cash equivalents at the end of the period came in around $1.2 million.


Operating Cashflow (Source: Company Reports)
 
Key Risks: Due to the nature of activities, KTA does not have ready access to credit facilities, with the primary source of funding being equity raisings. Therefore, it is crucial for the company to balance the current working capital position against the requirement of the Group to meet exploration programmes and corporate overheads. Failure in maintaining adequate liquidity can disturb the company’s operations and its ability to provide returns to shareholders. Uncertainty regarding the change in market prices, such as foreign exchange rates and equity prices, is another potential threat to the company’s financial performance.
 
Stock Recommendation: The stock of the company gave positive returns of 28.57% in the last three months and is currently inclined towards its 52-week high of $0.064. The company’s exploration programs for both its projects are progressing well, as suggested by the March quarter update on the Belgravia Project and the recent application for a drilling program at the Turon Project. Considering the recent developments and current trading levels, we are keeping a close watch on how these events unfold in the future. Hence, we have a watch stance on the stock at the current market price of $0.063, up 40% on 2^nd July 2020, owing to the update on the diamond drill program.
 

Bigtincan Holdings Limited

New Contract Secured with Red Bull GmbH:Bigtincan Holdings Limited (ASX: BTH) has a mobile, AI-powered sales enablement automation platform, that helps sales and service teams increase win rates and customer satisfaction. The company recently signed a $1.8 million contract with Red Bull GmbH, to deploy Bigtincan software for the use of Red Bull employees and distributors globally. The software will assist in empowering these users for remote onboarding and training, and to promote and sell Red Bull products in customer-facing scenarios on iOS devices and phones/tablets. The contract has a term of 30 months, with an option for an additional 60 months extension.
Completion of SPP: On 19^th June 2020, the company announced the completion of its Share Purchase Plan, receiving over 3,700 valid applications totaling approximately $16.1 million. The company issued around 11.2 million fully paid ordinary shares under the SPP, at an issue price of $0.67 per share. Earlier, in May, the company had raised ~$35 million via an Institutional Placement. Proceeds from the SPP and Placement will be utilised to accelerate strategic priorities, capture SaaS market tailwinds, technology investments, and to capitalise on M&A opportunities appearing during FY21/22.

Quarterly Update: During the quarter ended 31^st March 2020, customer cash receipts came in at $14.9 million, up 178% on pcp, owing to large customer deals signed at the end of 2019. During the March quarter, the company benefitted from the market development impact of the Global Pandemic, with increased usage of sales enablement software for delivery of key data and information, including information about the pandemic. The company also announced a new customer, DXC Technologies, and continued to expand existing customers. Cash flow from operating activities came in at $5 million, with cash and cash equivalents at the end of the period amounting to ~$31.47 million.


Operating Cashflow (Source: Company Reports)
 
Guidance: In F20, the company expects to deliver 30-40% organic revenue growth, with stable retention in FY20 as demonstrated by new wins and ongoing market execution.
 
Key Risks: The company operates in a highly competitive industry and has to keep up with its peers with regard to factors such as price, service, performance standards, information security, innovation, etc. Moreover, entry of new players in the industry is a potential threat to the business, which may offer new and innovative products at competitive pricing. In addition, failure to retain existing customers and attract new customers can adversely impact business operations.
 
Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)
 
EV/Sales 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 gave positive returns of 61.22% in the last three months and is currently inclined towards its 52-week high of $1.080.We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in percentage terms). Considering the performance in March quarter, recently secured contract, capital raising via Placement and SPP, valuation, and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $0.795, up 0.633% on 2^nd July 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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