AuMake International Limited

 

AU8 Details
 
Synergies from Broadway Integration to Drive Growth: AuMake International Limited (ASX: AU8) is engaged in delivering authentic Australian and New Zealand made products to Asian customers via a multichannel distribution channel.
 
Key Trading Update: On 12 December 2019, the company announced a significant trading update, based on the encouraging trend from the buyout of Broadway. Consequently, the company has stated positive EBITDA for the months of October and November. Total revenue for the period surpassed $18 million and gross margin was more than 20%.
 
Quarterly Results for the Period Ended 30 September 2019: The company reported revenue of $18.5 million, an increase of 42% quarter over quarter. Gross margins for the period came in at 17.3% as compared to 14.7% reported in the previous quarter.The company reported gross profit of $3.2 million, an increase of 68% on the previous quarter. The company’s owned brand revenue went up by 67% and came in at $1 million. Online sales for the quarter came in at $3.9 million, up 11% from the previous quarter.
 

Q1 Financial Highlights (Source: Company Reports)
 
Cash Flow Details: Cash balance of the company as at 30 September 2019 came in at $9.6 million. Net cash from operating activities during the quarter stood at $3.5 million.  In the coming quarter, the company is expecting net cash outflow amounting to be $19 million, after making major payments for staff costs and cost of goods sold of ~$2.9 million and ~$14 million, respectively.
 

Estimated Cash Outflow (Source: Company Reports)
 
Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week high-low of $0.250 and $0.099, respectively. The stock went up by 9.5% in the past one month. As on 2 January 2020, the company’s market capitalisation stands at ~$38.23 million, with 332.44 million outstanding shares. The company expects its tour group visitation to increase substantially in the coming quarter. Also, it is expecting to improve its financial performance in the coming quarter on the back of synergies from Broadway acquisition. On the valuation front, the stock is trading at a price to book value multiple of 2.0x as compared to the industry average of 3.6x on TTM (Trailing Twelve Months) basis. Considering the above factors, we have a watch stance on the stock at the current market price of $0.125, up 8.696% on 02 January 2020. 

 
AU8 Daily Technical Chart (Source: Thomson Reuters)
 

Stanmore Coal Limited

SMR Details
 
Net Cash Increased ~357% on FY18: Stanmore Coal Limited (ASX: SMR) is an Australia-based coal mining company, engaged in exploration and development of coal mines in Bowen and Surat Basins.
 
Key Highlights for the Year Ended 30 June 2019: The company reported underlying EBITDA for FY19 at $154.9 million, up from $45.6 million reported in FY18. Revenue for the period increased by 94% and came in at $403.1 million. The company’s net profit after tax stood at $91.6 million, up from ~$6 million reported in FY18. Gross revenue from coal sales during the quarter came in $403 million as compared to $190.8 million in FY18. Underlying FOB (Free on Board) costs for FY19 stood at $104.7 per tonne, down from $110 per tonne reported in FY18. 
 

FY19 Financial Highlights (Source: Company Reports)
 
Cash Flow Details: Cash flow from operating activities for the period stood at ~$140 million, significantly up from $21.9 million reported in FY18. The company exited the year with net cash amounting $90.5 million, substantially higher than the FY18 cash balance of $19.8 million.
 
What to expect: The company expects FY2020 production to be 2.35Mt, after incorporating the latest acquired CAT 6060 excavator. The company expects unit costs to increase to $99.5 per tonne in the coming year. The figure excludes state royalties.
 
Valuation Methodology: Price to Cash Flow Multiple Approach
 

Price to Cash FlowBased Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week high-low of $1.550 and $0.905, respectively. The stock went up ~4% in the past one month. As on 2 January 2020, the company’s market capitalisation stands at ~$268.94 million, with 256.13 million outstanding shares. The company is likely to leverage its high-value coal sales opportunities and is expected to take benefit of the enhanced production and coal quality from Isaac Plains East. Additionally, the company is on track to manage its operating costs and capital investments, thereby ensuring robust cash flows in the near-term. Considering the above factors, we have valued the stock using one relative valuation method, i.e., Price to Cash Flow multiple and arrived at a target price with a higher single-digit upside (in % terms). Hence,we give a “Buy” rating on the stock at the current market price of $1.065, up 1.429% on 02 January 2020. 

 
SMR Daily Technical Chart (Source: Thomson Reuters)
 

Whitehaven Coal Limited

 

WHC Details
 
Whitehaven Increases Ownership Stake in Narrabri Mine to 77.5%: Whitehaven Coal Limited (ASX: WHC) is involved in the operation and production of high-quality metallurgical and thermal coal mines, in New South Wales. On 02 January 2019, the company announced that it has finalized the buyout of EDF Trading Australia Pty Limited for a total consideration of US$72 million. The latter holds a 7.5% interest in the Narrabri mine. The move brings Whitehaven Coal Limited’s total interest in the Narrabri mine to around 77.5%.  
 
Key Takeaways for the September Quarter 2019: During the quarter, the company’s total managed saleable coal production stood at 4,909k tonnes, an increase of 23% year over year. The managed total coal sales increased by 14% year over year and came in at 5,546k tonnes. The company’s managed ROM Coal Production stood at 4,420k tonnes, up 22% year over year.
 

Whitehaven Managed Totals for September Quarter (Source: Company Reports)
 
FY20 Production Guidance: On 5th December 2019, the company updated its outlook for FY2020. The company now projects managed ROM coal production to be in the range of 20.0 - 22.0 Mt, as compared to the previous guidance of 22.0 to 23.5 Mt. Managed coal sales are now expected to be between 19.0 and 20.0 Mt as compared to the previous guidance of 20.0 to 21.0 Mt.
 

Updated FY20 Guidance (Source: Company Reports) 
 
Valuation Methodologies: 
 
Method 1: Price to Book Multiple Approach

Price to BookBasedValuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Method 2: EV/Sales Multiple Approach

EV/Sales BasedValuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week high-low of $4.698 and $2.490, respectively. As on 2 January 2020, the company’s market capitalisation stands at ~$2.71 billion, with 1.03 billion outstanding shares. The company’s share generated a negative YTD return of around 34.02%. Its gross margin, EBITDA margin, and net margin for FY19 stood at 54.6%, 59.1% and 21.2%, better than the industry median of 44.3%, 32.2%, and 15.3%, respectively, implying decent fundamentals of the company. The debt to equity ratio for FY19 stood at 0.12x, lower than the industry median of 0.24x. Hence, considering the company’s September Quarter production data, revised FY20 outlook, and current trading levels, we have valued the stock using two relative valuation methods, i.e., Price to Book and EV/Sales multiple approach and arrived at a lower double-digit growth (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.570, down 2.652% on 02 January 2019. 
 
 
WHC Daily Technical Chart (Source: Thomson Reuters)

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