Bubs Australia Limited

BUB Details

3QFY21 Financial Highlights: Bubs Australia Limited (ASX: BUB) is engaged in the production of infant formula and children’s nutrition products in Australia. The company also produces goat dairy products. The company has registered an increase of 28% QoQ in China export sales in 3QFY21. The company has registered an increase of 38% QoQ in Daigou infant formula sales in 3QFY21. Bubs Australia reported being the fastest growing infant formula manufacturer across Chemist Warehouse, Coles and Woolworths with sales increased by 37% pcp. The company has reported sufficient liquidity with cash reserves of $36.3mn as on 31 March 2021. 

Cash Balance as on 31 March 2021 (Source: Company Reports)

COO Appointed to Drive Business Growth: The company has informed recently on 10 May 2021 regarding an appointment of a new CEO. BUB has appointed Fabrizio Jorge as its new Chief Operating Officer (COO). The new appointment is made to focus on driving the company’s global growth with relevant experience in the business development and export across global dairy markets. 

Key Risks: The company requires to supply its products regularly to the dealers and retailers. Any disruption in the supply chain may impact the business of the company. The company deals in multiple currencies. Thus, any adverse movement in foreign exchange prices may see an impact on its profit margins.

Outlook: BUB expects a modest gross revenue growth in 2HFY21 over 1HFY21. BUB is expecting to deliver profit growth through optimizing its sales channel and product mix by FY22. BUB is likely to implement supply chain efficiencies to save cost during the same period.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of BUB gave a return of ~-23.86% in the last one month and a return of ~-41.22% in the last three months. The current market capitalisation of BUB stands at ~$211.40mn as of 25 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.315-~$1.130. On the technical analysis front, the stock has a support level of ~$0.275 and a resistance of ~$0.400. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer average, as the company had significant exports to China, which may expose to geopolitical tenson and trade restrictions. For this purpose, we have taken peers Bega Cheese Ltd (ASX: BGA), Tassal Group Ltd (ASX: TGR), Murray Cod Australia Ltd (ASX: MCA), to name a few. Considering appointment of a new COO to drive business growth, an increase in export sales in 3QFY21, optimizing sales channel and product mix, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.335, down by ~2.899% as on 25 May 2021.

BUB Daily Technical Chart, Data Source: REFINITIV

ImpediMed Limited

IPD Details

Enhancements for SOZO Software: ImpediMed Limited (ASX: IPD) is a global provider of medical technology to gauge, monitor and manage fluid status and body composition. The principal activities consist of the development, manufacture and sale of bioimpedance instruments and consumables, and the sale of electronic test and measurement devices. The company has released a report on upgrading its SOZO technology with Version 4.0 software. After few hours of release, the company has witnessed a strong demand from the customers to upgrade the SOZO version 4.0 software. The continuation of improvements in software has led to an increased Average Selling Price (ASP). The software is now upgraded with user friendly interface features and more intuitive and easier to use.

3QFY21 Financial Highlights: The company has posted an increase of 35% YoY in its revenue to $2.3mn in 3QFY21 on the back of significant revenue contribution from SOZO. The company has posted an impressive revenue growth in 3QFY21 considering total revenue of $3.6mn in 1HFY21. The company has seen a growth of 49% YoY in its Average Recurring Revenue (ARR) to $8.2mn in 3QFY21. Contracted Revenue Pipeline increased by 20% YoY to $14.5mn in 3QFY21. IPD has conducted more than 32k patient tests in 3QFY21, an increase of 58% YoY. Due to continuous enhancement in SOZO software, the company has witnessed a lower churn rate of 1% with ~100% renewal rate in 3QFY21.

SOZO Revenue and Patient Tests Growth (Source: Company Reports)

Key Risks: The company requires to keep its technology updated to carry out its business efficiently. Any obsolete or failure of technology may impact the business of the company. The company may see an impact on its profit margins with a severe movement in foreign exchange rates.

Outlook: IPD continues to deploy its SOZO software for AstraZeneca trials. AstraZeneca is likely to utilize the technology in Phase II trial to evaluate fluid volume in patients with heart failure and chronic key diseases. In addition, nearly 200 SOZO devices will be required across 24 countries and the trial is expected to run across for 18 months approximately and likely to generate $2.0mn in revenue. ~375 SOZO devices will be leased under two studies, contributing more than $4.5mn in revenue.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of IPD gave a return of ~+4.16% in the last one month and a return of ~-3.84% in the last three months. The current market capitalisation of IPD stands at ~$186.45mn as of 25 May 2021. The stock is currently trading slightly above the average 52-weeks’ price level range of ~$0.058-~$0.185. On the technical analysis front, the stock has a support level of ~$0.097 and a resistance of ~$0.153 We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering registering a loss in 1HFY21 and decline in cash as on 31 December 2020. For this purpose, we have taken peers Alcidion Group Ltd (ASX: ALC), Micro-X Ltd (ASX: MX1), Oventus Medical Ltd (ASX: OVN) to name a few. Considering robust revenue growth through SOZO software, increasing patient tests, delivering SOZO for AstraZeneca Phase II trials, associated business risks, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.125, as on 25 May 2021.

IPD Daily Technical Chart, Data Source: REFINITIV

Fluence Corporation Limited

FLC Details

FY20 Turned to EBITDA Positive: Fluence Corporation Limited (ASX: FLC) is engaged in providing water treatment solutions. It offers solution including decentralized treatment, desalination, reuse, waste-to-energy, water treatment, wastewater treatment, food and beverage processing. The company has reported a positive EBITDA for the first time in FY20. The company has reported an EBITDA of US $2.3mn in FY20 against loss of US $23.6mn in FY19. Positive EBITDA supported by an increase in revenue to US $97.4mn in FY20 against US $60.2mn in FY19 and a decline in operating expenses to US $28.6mn in FY20 against US $40.1mn in FY19.

EBITDA FY20 (Source: Company Reports) 

1QFY21 Financial Highlights: The company has registered an increase of 6% YoY in new orders in 1QFY21. FLC has reported an increase of 28% YoY in its SPS revenue to US $3.7mn with an increase of 36% QoQ in new orders for SPS to US $7.5mn in 1QFY21. The company has reported operational efficiencies with 10% QoQ decline in its operating expenses. 

Key Risks: The company requires to keep its technology updated to carry out its business efficiently. Any obsolete or failure of technology may impact the business of the company. The company may see an impact on its profit margins with a severe movement in foreign exchange rates.

Outlook: FLC focus on improving its profit margins by being present in high margin businesses and optimizing its operational. The company has positioned itself for growth with SPS sales in the range of US $35-$50mn and positive underlying EBITDA in FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of FLC gave a return of ~-19.99% in the last one month and a return of ~-18.18% in the last three months. The current market capitalisation of FLC stands at ~$118.72mn as of 25 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.160-~$0.330. On the technical analysis front, the stock has a support level of ~$0.164 and a resistance of ~$0.232. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a decline in net assets and an increase in total current liabilities as on 31 December 2020. For this purpose, we have taken peers Service Stream Ltd (ASX: SSM), Lycopodium Ltd (ASX: LYL), CIMIC Group Ltd (ASX: CIM) to name a few. Considering turnaround with positive EBITDA in FY20, increase in new orders in 1QFY21, positioning in high margin business, current trading levels and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.18, down by ~5.264% as on 25 May 2021.

FLC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from Refinitiv            

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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