Stocks’ Details

Hazer Group Limited

Execution of Binding Agreement: Hazer Group Limited (ASX: HZR) is involved in the research and development of novel graphite-and-hydrogen-production technology. The market capitalisation of the company stood at $137.15 Mn as on 12^th January 2021. On 30^th November 2020, the company notified the market that it has implemented a binding convertible note and option deed with AP Ventures Fund II GP LLP (APV) for an investment of $4 million by APV in Hazer. In addition, APV would acquire 4 million unlisted $1 convertible notes (Notes) and 2.25 million unlisted options (Options) in Hazer and will be entitled to nominate a representative to join the Hazer Board. During September 2020 quarter, the Board of the company has approved the final investment decision to proceed with the Hazer Commercial Demonstration Plant (CDP). In addition, the company executed binding agreements for a $6.0 million senior secured loan facility from Mitchell Asset Management (MAM Loan Facility). For the year ended 30^th June 2020, the company reported a fall of 14% in revenue to $1,436,617 and loss for the year amounted to $3,225,289, down 27% over pcp.

Financial Summary (Source: Company Reports)

Outlook: Looking forward, the company would maintain its focus on growth in the wealth of shareholders via strengthening its business.

Stock Recommendation: As on 30^th September 2020, the cash reserves of the company stood at $15.53 million. The stock of HZR has moved up by 161.11% and 147.36% in the last six and nine months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.980. In addition, the stock is trading at a price to book value multiple of 14.1x as compared to the industry median (Basic Materials) of 3.0x on TTM basis. Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$0.586 and a resistance level of ~$0.960. Therefore, considering the price movement in the past months, current trading level and valuation, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $0.925 per share, down by 2.117% on 12^th January 2021. We further suggest investors to wait for a better entry level.

Ovato Limited

Court Approval for Scheme of Arrangement: Ovato Limited (ASX: OVT) provides marketing services, digital premedia, commercial printing, letterbox delivery and magazine distribution services. The market capitalisation of the company stood at $69.86 million as on 12^th January 2021. Recently, the company announced that the Supreme Court of New South Wales has approved Creditors’ and Members’ Schemes of Arrangement. The main objective of the creditor scheme is to seek a compromise from the major creditors of Ovato Print Pty Ltd and to bring about a reduction in the capacity and size of the workforce of the Group's printing business while Members’ Scheme will focus on the restructuring of Ovato Print Pty Ltd.  In addition, the company is also undertaking an entitlement offer to raise up to $40.0 million. The funds from the offer along with around $17.0 million from a new secured debt facility would be used for exiting onerous leases, operational initiatives, cash backing of remaining bank guarantees, headcount rationalisation, repayment on overdraft facility, payment of transaction fees and the availability of new balance sheet working capital liquidity.

For the quarter ended 30^th September 2020, the company recorded sales revenues (unaudited) amounting to $109.0 million, reflecting a fall of 31.9% due to the impact of COVID-19. EBITDA for the quarter also fell by 2.7% on a YoY basis. Cash from operation for the quarter was negative $1.2 million and net cashflow from investing activities was $0.4 million and net cashflow for the quarter was negative $0.8 million. During FY20, the company recorded sales revenue of $539.3 million against $669.2 million in FY19. EBITDA during FY20 amounted to $32.4 million. The company closed the year with net debt of $72.9 million.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is committed to deliver on its brand promise of turning audiences into customers. The company would also focus on cost control via a focus on the reduction in redundancy scales to allow affordable restructuring.

Stock Recommendation: As on 30^th September 2020, the cash balance of the company stood at $ $11.7 million. Debt to equity of the company stood at 10.98x as compared to the industry median of 0.39x. Asset to equity ratio of the company stood at 21.48x in FY20 against the industry median of 2.38x. Hence, it can be said that the business is in a highly leveraged position. The 52-week low-high range for the stock stands at $0.005 - $0.063, respectively.  In addition, the stock is trading at a price to book value multiple of 3.9x as compared to the industry median (Professional & Commercial Services) of 3.0x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.0069 and a resistance level of ~$0.0668.  Therefore, considering the falling revenue, losses in business, and highly leveraged position, we advise the investors to avoid the stock at the current market price of $0.007 per share, down by 12.5% on 12^th January 2021.

Cann Global Limited

Final Decision by TGA:  Cann Global Limited (ASX: CGB) is involved in developing, growing, cultivating, and producing hemp and medicinal cannabis products. The market capitalisation of the company stood at ~$39.93 million as on 12^th January 2021. Recently, the company noted final decisions made by Therapeutic Good Administration (TGA) on the proposed amendments to the poison standards. The company stated that TGA has affirmed that it will down schedule cannabidiol preparation from schedule 4 to schedule 3. On 11^th December 2020, the company stated that it would clear all its liabilities, including large convertible note holders by using a large portion of funds of $3.75 million raised from placement to sophisticated and professional investors.

September 2020 Quarter Highlights: During September 2020 quarter, the company reached a Grant Agreement with Applied Cannabis Research for assisting the Cannabinoid Medicine Observational Study on hard pill cannabinoid formulations produced by Canntab facilitating early exposure to the Australian consumer. As a result of the increased sales in the food division and the first cash receipts from Cann Global Thailand, the company reported a rise of 59% over pcp in cash receipts from customers to $448k.

Cash Flow (Source: Company Reports)

Outlook: Subsequent to the end of the quarter, the company has also received import permit to bring the Canntab cannabinoid hard pills to Australia, and it is expecting sales to commence in Q3 FY21. Looking forward, the company is focused on generating a profitable business with new revenue channels in product areas of expected high demand.

Stock Recommendation: The company closed the quarter with a healthy cash balance of $8.9. Current ratio of the company stood at 1.30x in FY20 as compared to 0.80x in FY19, which reflects that the company is well-positioned to address its short-term obligations. The stock of CGB has corrected 24.99% In the last one month. As a result, the stock is inclined towards its 52-week low level of $0.004, offering decent opportunity for accumulation.  In addition, the stock is trading at a price to book value multiple of 3.7x as compared to the industry average (Pharmaceuticals) of 10.3x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.0041 and a resistance level of ~$0. 02. Thus, considering the decent growth in cash receipts, healthy cash position, and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.008 per share, up by 14.285% on 12^th January 2021.

Alderan Resources Limited

Commencement of Drilling: Alderan Resources Limited (ASX: AL8) is involved in the exploration of minerals. The market capitalisation of the company stood at $31.28 million as on 12^th January 2021. Recently, the company announced that it has commenced drilling on its Black Rock Cu/Au target, which is part of the Valley-Crossroads Project. AL8 is earning up to 70% interest from the projects through an agreement with Tamra Mining Company LLC. The company anticipates the program to be completed within 2 weeks. In addition, the company is also intending to raise $3 million via the issue of around 35.3 million new shares to institutional and sophisticated investors at a price of $0.085 per Placement Share. Proceeds from the placement would be ultilised for expansion of its exploration programs at its advanced copper-gold projects in Utah, USA. During September 2020 quarter, the company recorded net cash outflow from operating and investing activities of $341k and $578k, respectively. During FY20, the company recorded reported loss amounting to $1,702,261 as compared to $4,167,457 in FY19.

Financial Summary (Source: Company Reports)

Outlook: During 2021, the company will be focused on advancing its gold projects, which include Detroit and White Mountain.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $1.25 million. In the last one and nine months, the stock has surged 23.62% and 650%, respectively. In the past few years, the company has consistently recorded negative ROE and ROIC. On a technical analysis front, the stock has a support level of ~$0.105 and a resistance level of ~$0. 217. Hence, in light of the absence of revenue, and loss-making business, we advise investors to avoid the stock at the current market price of $0.110 per share, up by 4.761% on 12^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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