Stocks’ Details

iSignthis Limited

Business Turns Cash Flow Positive in 2QFY19: iSignthis Limited (ASX: ISX) is a global RegTech leader in remote identity verification, payment authentication with deposit taking, transactional banking and payment processing capability.

Director’s Interest update: The company recently updated that Timothy Hart, one of the directors, acquired 500,000 ordinary shares upon conversion of Performance Rights.

Half-yearly Performance of FY19: During the six months ended 30 June 2019, the company reported total audited operating revenue amounting to A$7.5 million, up 49% from A$5.0 million in prior corresponding period. Statutory loss after tax was reported at A$0.7 million, down 75% on prior corresponding period loss of A$2.9 million. EBIT loss for the period was reported at A$0.3 million, as compared to EBIT loss of A$2.85 million in prior corresponding period. The company’s cash balance as at 30 June 2019 was reported at $9.9 million.

Operational Trading Update: As at 31 July 2019, actual annualised monthly Gross Processing Turnover Value (GPTV) stood at approximately A$830 million, up 96% from 30 June 2019. At the end of July, group approvals went up to 240, representing an increase of 14% as compared to 210 in 2Q report. In August, the operating cost base was revised to approximately $11.0 million per annum annualised. Supported by the above factors, FY19 EBIT is expected to be $10.7 million.


Monthly GPTV (Source: Company Reports)

Stock Recommendation: Over a period of 1-year, the stock generated returns of 614.71% and is currently priced at its 52-week high level of $1.360. The company achieved a cash flow positive position in mid-May, with an EBIT and cashflow positive result for 2QFY19. The company also revised the operating cost base in August for additional new product initiatives and capturing future revenue generating opportunities. Hence, considering the aforesaid facts coupled with exuberant returns in the last one year and current trading levels, we presume that most of the positives are discounted at the current level. Hence, we give an “Expensive” recommendation on the stock at the current market price of $1.360, up 11.934% on 03 September 2019. The stock rallied further after gaining ~18% on 28 August 2019 post the release of financial results for 1H19.
 

NRW Holdings Limited

Strong Cash Conversion in FY19:NRW Holdings Limited (ASX: NWH) is a provider of diversified services to the resources, energy, civil infrastructure and urban development sectors.

Director’s Interest: The company recently updated that Julian Alexander Pemberton, one of the directors, acquired 625,000 ordinary shares for the purpose of vesting of performance rights.

Dividend Distribution: In another recent announcement, the company declared total dividend amounting to AUD 0.0200 per ordinary share, to be paid on 16 December 2019.

Contract Update: The company has recently been awarded the Koodaideri Mine Pre-strip contract by Rio Tinto, valued at approximately $95 million with an expected duration of around 78 weeks. The contract work is expected to commence in November 2019.

FY19 Results: During the year ended 30 June 2019, the company reported revenue amounting to $1,126.3 million, up 49% as compared to the prior corresponding period. Comparative EBITDA increased to $144.0 million, up 54% on pcp. Net earnings before amortisation of acquisition intangibles (NPATA) stood at $40.4 million, up 19% on prior corresponding period.

FY19 Performance (Source: Company Reports)

Outlook: Out of the order book of approximately $2.2 billion as at 30 June 2019, $1.1 billion is scheduled for delivery in FY20 apart from orders of Urban and RCRMT. The businesses are expected to contribute at least an additional $200 million of revenue in FY20. Revenue for FY20 is expected to be approximately $1.5 billion.

Stock Recommendation: The stock of the company generated negative returns of 5.10% and 12.95% over a period of 1 month and 3 months, respectively. In FY19, the company’s cash holdings increased to $65.0 million, representing a strong cash conversion of 95%. The period also saw the acquisition of RCR Mining Technologies that provided significant diversification in service offering. In addition, the company secured new Civil contracts for major iron ore producers (South Flank, Eliwana and Koodaideri) in Western Australia. In FY19, the company had an EBITDA margin of 13.6%, which is higher than the industry median of 6.2%. Net margin for the period was 3.0% as compared to the industry median of 2.7%. Based on the aforesaid factors, we give a “Hold” recommendation on the stock at the current market price of $2.440, up 3.39% on 03 September 2019.
 

Speedcast International Limited

Growth to Revive Soon:Speedcast International Limited (ASX: SDA) is a provider of remote communications and IT services.

Shareholding update: The company recently announced that Mitsubishi UFJ Financial Group, Inc., became a substantial shareholder of the company with the voting power of 5.46%. Norges Bank also became a substantial shareholder with 5.53% of the voting power in the company.

Director’s Interest: Stephe Wilks, director of the company, acquired 100,000 ordinary shares for a consideration of $0.80 per share.

1H19 Performance: During the six months ended 30 June 2019, group revenue amounted to $357.6 million, up 17.3% on prior corresponding period revenue of $304.8 million. Statutory loss after tax amounted to $175.5 million, representing a negative impact worth $154.8 million from the impairment of goodwill relating to performance of non-government operating segment. Excluding the impact of goodwill, underlying NPATA stood at $14.7 million, as compared to $21.1 million in the prior corresponding period. Underlying EBITDA stood at $62.6 million, up 3.0% on prior corresponding period EBITDA of $60.4 million.


Underlying Financial Results (Source: Company Reports)

FY19 Guidance: EBITDA for FY19 is expected to be in the range of $150 million to $160 million. Capital expenditure for the year is targeted at $50 million. In the second half of FY19, the company is expecting moderate organic growth with expected cost savings of $10 million, totalling to $20 million of annualised savings. Furthermore, the company will not declare any dividend in the second half.

Stock Recommendation: The stock of the company generated negative returns of 46.96% over a period of 1 month. The first half of FY19 witnessed the subdued organic growth in the operating segments due to certain challenges. The company is now responding to the market challenges and has undertaken a thorough analysis of the business to support its expectations for the second half. Over the medium term, Maritime business is expected to witness decent growth. Government segment is also expected to grow with continued increase in defense spending and revenue synergies from Globecomm integration expected in 2020. A return to growth in the Energy business will provide an uplift to underlying EBITDA margin. Currently, the stock is priced below the average of 52 weeks high and low levels of $4.970 and $0.682, respectively, with an annual dividend yield of 7.5%, indicating a decent opportunity for accumulation. Hence, considering the above factors and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.160, up 20.833% on 03 September 2019.


Comparative Price Chart (Source: Thomson Reuters)

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