Zip Co Limited (ASX: Z1P)

Z1P operates as a digital payment provider. It operates in Buy-Now-Pay Later (BNPL) and Spotcap segments. Its financial products include Zip, Zip Business, Zip App, and Pocketbook. Z1P holds a market capitalization of $1.08 billion as of March 10, 2022.

Recent Business Updates: As announced on March 9, 2022, JPMorgan Chase & Co ceased to be a substantial shareholder in Z1P. Further, Bank of America offloaded its stake to ceased to be a substantial shareholder on March 8, 2022. On March 7, 2022, co-founders of Z1P, Larry Diamond and Peter Gray acquired ~873.19k shares for $1.5 million. It had completed the institutional placement for $148.7 million on February 28, 2022. These funds will be diverted for the proposed acquisition of Sezzle Inc (SZL).

Acquisition of SZL: The proposed acquisition has been approved unanimously by the boards of both ZIP and SZL. As agreed, SZL shareholders will receive 0.98 Z1P shares for every SZL share they own. This represents the implied value of $491 million. The deal values SZL at a 22% premium based on the closing price of $1.78 of SZL as of February 25, 2022. The deal is expected to uplift FY24 EBITDA of Z1P by $130 million with $60-80 million from cost synergies.

Recap on H1FY22 Results: In H1FY22, revenue surged 89% and transaction volume reached $4.5 billion, up 93% YoY. Expansion to India and Singapore helped to scale-up monthly transaction volume. It had added several reputed merchants like Footlocker, Mercari, Revolve, and so on. Z1P witnessed 74% growth in customers reaching 9.9 million.

Technical Analysis: Zip price declined significantly after the prices witnessed downside from past six monthly consecutively. Now the prices came down to its 138.6% Golden Fibonacci extension supply zone on a long-term chart that indicates that the prices might reverse from key supporting levels. RSI (14-period) is hovering at the oversold region at ~26.23 level on a daily chart that further indicates buying might initiate from key supporting levels. Also, there is a positive RSI divergence with prices clearly visible on a daily chart that is also supportive of the price action. Immediate support levels are AUD 1.545 and AUD 1.4100, while key resistance levels are AUD 2.030 and AUD 2.320.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

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 Z1P has been corrected by ~66.37% in the past three months. The stock just recovered from the 52-week low price of $1.545. The stock has been valued using the Price/Book Value-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the synergies from the proposed acquisition of SZL. For this purpose of valuation, a few peers like WISR Ltd. (ASX: WZR), Eclipx Group Ltd. (ASX: ECX), and Insignia Financial Ltd. (ASX: IFL) have been considered. Considering the strong growth in revenue and transaction volume showcased in H1FY22, scale benefits from SZL acquisition, rapid adoption of digital payment systems across the globe, expansion plans, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.705 as of 9 March 2022, up ~4.60%. However, the risk levels are high depending on the successful integration of SZL, increased regulatory oversight, etc.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

Z1P Daily Technical Chart, Data Source: REFINITIV 

Disclosure: Kalkine’s Director Kunal Sawhney owns shares of Zip Co Limited. Kalkine Pty Ltd has recommended Zip Co Limited as general investment advice only (under AFSL 425376).

Australian Ethical Investment Limited (ASX: AEF)

AEF operates as a financial services company providing managed funds, super, and pension products. The company manages its funds with ethical consideration and professional investment management. It acts as a trustee of the Australian Ethical Retail Superannuation Fund. AEF holds a market capitalization of $709.16 million as of March 10, 2022.

Recent Business Updates: In H1FY22, AEF showcased a 38% hike in operating revenue. Its funds under management jumped 38% to reach $6.94 billion. It had launched new products – High Growth Fund and High Conviction Fund in October 2021. Besides, High Conviction ETF was launched in February 2022. Its revenue reached $35.225 million leading to statutory net profit of $5.51 million as compared to $5.34 million in the prior year. Its last year net profit includes one-off grant from the government and insurance settlements which were absent in the current year. AEF declared interim dividend of 3 cents per share payable on March 17, 2022. It had witnessed majority of fund inflows for Superannuation product. AEF maintained strong balance sheet with nil debt and held a cash balance of $23.3 million.

Technical Analysis: AEF is trading in a bearish zone after the stock prices broke its crucial support level of AUD 8.34. RSI (14-period) is hovering at oversold region i.e., 29.24 level that further indicates bearish price momentum. The stock might head towards its next supporting levels i.e., AUD 5.74 and AUD 4.93. On the higher side, AUD 7.35 and AUD 8.34 are the immediate resistance levels for the stock.

After the bleak investment climate owing to the escalating Ukraine Russia war and the stock is trading in an oversold zone, investing in this stock at current levels must be considered with a careful approach, hence it's suggested to ‘Watch’ and re-evaluate the stock once the prices approach the support & resistance levels. The stock was analyzed as per the closing price of AUD 6.440 per share, up by ~2.060%, as of 10 March 2022.  

AEF Daily Technical Chart, Data Source: REFINITIV 

Compumedics Limited (ASX: CMP)

CMP is engaged in developing and commercializing technology in computer-based patient monitoring and diagnostic systems. The company owns Germany-based DWL Elektronishe GmbH and US-based Neuroscan.

H1FY22 Financial and Operational Updates: CMP recorded new sales orders at $27.0 million, up by a significant 33% relative to $20.3 million booked in H1FY21. Excluding MEG, core sales orders stood at $22.8 million, up by 13% PcP. Revenue from sales of goods and services slipped by 7% to $16.8 million, resulting from global supply chain disruption, chip shortages, and other COVID-19 related issues. EBITDA stood at $1.2 million relative to $1.9 million witnessed in a prior comparable period, largely driven by lower margins, dipped sales, and a targeted increase in expenses as the company shifts its focus on growth opportunities. Operating cash flow stood at $0.8 million (H1FY21: $0.2 million). CMP has continued with decent cash flow recovery of sales, and contributions to net cash increased to $1.8 million for 31st December 2022 relative to $0.8 million for 30th June 2021.

Technical Analysis: On the daily chart, CMP prices are trading below the falling trend line support zone and facing resistance of the same.  Moreover, the prices are trading below the trend-following indicators 21-period and 50-period SMA, which may act as a resistance zone. However, the momentum oscillator RSI (14-period) trading at ~39.31 level and formed the positive divergence, which might indicate the possibility of a rebound in the stock. An important support level for the stock, is placed at AUD 0.284 while the key resistance level is placed at AUD 0.35.

Citing lower revenues and drop in EBITDA in H1FY22, and possibility of rebound in share price, investing in this stock at current levels must be considered with a careful approach, hence it's suggested to ‘Watch’ and re-evaluate the stock once the prices approach the support & resistance levels. The stock was analyzed as per the closing price of AUD 0.315 per share, down by ~0.788%, as of 10 March 2022.  

CMP Daily Technical Chart, Data Source: REFINITIV 

Critical Resources Limited (ASX: CRR)

CRR is an Australian copper and gold development company. The business’ projects encompass Halls Peak base metals project and Oman Copper Project in New South Wales. As of 10^th March 2022, the company’s market capitalisation stood at $104.89 million.

FY21 Business and Financial Update: On 09th March 2022, CRR announced the assays’ confirmation on massive, semi-massive and disseminated sulphide in CRR’s sixth diamond drill hole, namely Hone 09, of its drilling campaign at the Gibsons prospects intersected to 141.1 meters. The downhole EM survey indicates a geophysical target standing at 55 meters downhole that are expected to extend up to 100 meters away from hole 09. Loss of the year stood at $1.66 million in FY21 relative to a loss of $0.81 million in FY20. Cash and cash equivalents advanced to $4.77 million as of 31st December 2021 relative to $1.91 million as of 31st December 2020, primarily attributed to $5.55 million inflow from funds held in trust and proceeds from the exercise of options.

Technical Analysis: CRR prices broke the downward sloping trend line and the prices are sustaining below the same from past one week indicating bearish movement in the stock. Prices are trading below its 21-period SMA and 50-period SMA that also indicating negative trend for the stock prices. RSI (14-period) is hovering at ~42.38 also indicating negative price momentum. Immediate support levels are AUD 0.064 and AUD 0.054 while immediate resistance levels are AUD 0.085 and 0.096.

Considering widening losses, nil core operating revenues, and negative price momentum, investing in this stock at current levels must be considered with a careful approach, hence it's suggested to ‘Watch’ and re-evaluate the stock once the prices approach the support & resistance levels. The stock was analyzed as per the closing price of AUD 0.073 per share, up by ~2.82%, as of 10 March 2022.

CRR Daily Technical Chart, Data Source: REFINITIV 

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

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

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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