Stocks’ Details
 

Reliance Worldwide Corporation Limited

 
Impact of COVID-19 on RWC Business: Reliance Worldwide Corporation Limited (ASX: RWC) is engaged in the manufacturing, designing, & supply of water flow and control products and solutions for the plumbing industry. On 1 May 2020, the company stated that it is taking necessary measures to curb the impact of COVID-19 outbreak. In Australia region, the company has opted to reduce its manufacturing operations to 4 days a week from 5 days, commencing from 11 May 2020. The company has also stated that more than 40% of the UK workforce had been placed on unpaid leave. In North America, the company’s manufacturing operations remain unaffected. Considering the COVID-19 pandemic, the company also stated that the executive team members have decided to reduce 20% of their base salaries and RWC’s non-executive directors have agreed to cut 20% of their fees, effective from May 1, 2020 (for two months period). The company further added that all non-essential capital expenditure has been suspended to boost cash flow during the time of global uncertainty from COVID-19.
 
1HFY20 Key Highlights: During the period, the company reported net sales of $569.3 million, up 5% year over year. EBITDA and adjusted net profit after tax stood at ~$126.3 million, and ~$63.7 million, respectively. Operating cash flow for the period stood at $112.8 million, up 163% year over year.
 

Key Highlights (Source: Company Reports)
 
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Based Valuation (Source: Refinitiv,Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
FY20 Guidance:Considering the rising uncertainty due to coronavirus outbreak, RWC has suspended its guidance for FY20. Nonetheless, the companywill continue to engage in opportunities to drive further efficiency enhancements and to optimize its manufacturing footprint.
 
 Stock Recommendation: The stock of the company gave negative returns of 41.08% over a period of six months and is currently trading below the average of its 52-week trading range of $1.63 - $4.8. The market capitalisation of the company stood at $1.98 billion as on 11 May 2020, with an annual dividend yield of 3.78%. We have valued the stock using a P/E multiple based relative valuation method (illustrative), and for the purpose, we have taken peers such as James Hardie Industries PLC (ASX: JHX), GWA Group Ltd (ASX: GWA), GUD Holdings Ltd (ASX: GUD) and arrived at a target price with an upside of low double-digit (in percentage terms). Hence, considering the performance in 1HFY20 and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $2.53 per share, up by 0.797% on 11 May 2020.
 

VEEM Ltd

 
VEEM Receives Orders of ~$9Mn from ASC: VEEM Ltd (ASX: VEE) is involved in the manufacturing of products and services for marine, defence and mining industries. As on 11 May 2020, the market capitalisation of the company stood at $54.6 million. Recently, the company announced that Perennial Value Management Limited, a substantial holder of the company, has increased its voting power from 13.43% to 14.93%. In another update, the company stated thatit has secured ~$9 million order from the Australian Submarine Corporation (ASC) for certain components for the maintenance program of the Collins Class Submarines. Work at VEEM’s specialised engineering facility has commenced, with deliveries is expected to begin from July 2020.
 
VEEM Completes World's Largest Gyrostabilizer: Recently, the company has successfully constructed the world’s largest and most powerful known gyrostabilizer for distribution to Damen Shipyards. The shipment of the VG1000 SD will commence soon to key European shipbuilder, Damen Shipyards, which builds > 175 vessels per annum for customers around the world. 
 
1HFY20 Key Financial Highlights: The company has recently released its interim results for the period ended 31 December 2019, wherein it reported an increase of 3% in revenue to $20.9 million and a rise of 34% in profit after tax to $0.9 million. Gyrostabilizer (“gyro”) sales during the period stood at $2.1 million, increasing 261% on pcp.
 

Sales of VEEM Gyros (Source: Company Reports)
 
What to Expect: The company has received increased enquiries and orders for the gyro range and expects FY20 full year sales of ~$5.5 million.
 
Stock Recommendation: As per ASX, the stock of VEE is inclined towards its 52-week low price of $0.400, proffering a decent opportunity for accumulation. The stock of the company gave negative returns of 22.22% over a period of six months. During 1HFY20, gross margin of the company stood at 69.4%, higher than the industry median of 31.8%. In the same time span, EBITDA margin witnessed an increase over the previous half and stood at 13.3%, up from 11.2% in 2H19. On TTM basis, the stock is trading at a price to book multiple of 1.7x, lower than the industry average (Industrials) of 4.1x. Considering the current trading levels, higher gross margin and decent growth opportunities, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.41, down by 2.381% on 11 May 2020.
 

Engenco Limited

 
COVID-19 Update: Engenco Limited (ASX: EGN) is engaged in operating within Australasia, Europe, and USA, and offers wide-based technical service to customers who depend on heavy plant and machinery. In response to COVID-19 pandemic, the company is successfully following the advice of the Australian Government and is taking necessary actions to ensure the well-being and safety of its employees. The company has not witnessed any direct material impact on the level of customer demand amid COVID-19 crisis. The company remains well equipped to capitalise and has adequate credit facilities which remain undrawn and is also well positioned to support future growth opportunities once the situation normalises.
 
Other Recent Update:Recently, the company announced that it has appointed, Meredith Rhimes as Joint Company Secretary.
 
1HFY20 Key Highlights:During the period, the company’s revenue witnessed a rise of 1.1% and stood at $88.96 million. The increase was on the back of continued growth in its multi-year strategy to increase its market share through greater capacity, capability, and product innovation.  EBIT for the period stood at $4.2 million, as compared to $6.9 million reported in the year-ago period. NPAT came in at $3.5 million, as compared to $6.5 million reported in the year-ago period. The company declared an interim dividend of 0.5 cents per share, fully franked in 1HFY20.
 

1HFY19 Key Financial Metrics (Source: Company Reports)
 
What to Expect: The company expects robust numbers in 2HFY20, with net profit before tax to be more than the first half. The company remains on track to invest in new facilities at Gladstone and Adelaide. Further, a strong contribution from these facilities is expected during the second half. The company expects 2HFY20 capital expenditure to be substantially lower at around $1.5 million.
 
Stock Recommendation: The stock of EGN has delivered a negative return of 24.07% in the span of the previous six months, while in the previous three months, the stock price corrected by 29.31%. As per ASX, the stock of EGN is inclined towards its 52-week low price of $0.380, with a market capitalisation of $128.49 Mn, and an annual dividend yield of 4.88%. During 1HFY20, gross margin of the company stood at 52.4%, higher than the industry median of 31.8%. In the same time span, EBITDA margin witnessed an increase over the previous half and stood at 7.6%, up from 6.9% in 2H19. On TTM basis, the stock is trading at a price to book multiple of 1.5x, lower than the industry average (Industrials) of 4.1x. The stock has an EV/Sales multiple of 0.7x, lower than the industry average (Industrials) of 18.8x. Hence, considering the aforesaid facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.41 per share on 11 May 2020.
 

ClearVue Technologies Limited

 
CPV’s IGU PV Increases Output by 33.3%:ClearVue Technologies Limited (ASX: CPV) is involved in the research and development activities for the world leading solar glass technology. On 7 May 2020, the company announced about successful trials of an enhanced photovoltaic (PV) integrated glazing unit (IGU) design demonstrating a 33.3% surge in ClearVue’s power performance to 40 watts/square metre. Notably, thecompany is also working towards product testing with IEC and UL during 2021 to include improved design into the ClearVue product portfolio.
 
Quarter Update for the Period Ended 31 March 2020: In response to COVID-19 Pandemic, the company is reducing the employee cost base, which includes reduced expenses relating to non-focused sales, marketing, and investor relations activities. The company is also cutting all non-essential operating expenses to conserve cash. The company is taking important steps to focus on R&D activities onto product development and reducing pure research activities. The company exited the quarter with a cash balance of ~$1.04 million. Net cash used in operations stood at $1.014 million.
 
CPV Enters into Collaboration Deal with eLstar Dynamics BV: The company had also entered into a collaboration agreement with eLstar Dynamics B.V to create a market leading, wireless smart window, which is capable of energy production and lighting control. 
 
1HFY20 Key Highlights and Future Expectation: During 1H20, revenue of the company went down by 47.95% to $378.9k and loss witnessed a decline of 54.33% to ~$1.22 million. The company is focused on delivering value to shareholders in long-term and on an aggressive global growth strategy to expand into global markets.
 

1HFY20 Financial Highlights (Source: Company Reports)
 
Stock Recommendation: As per ASX, the stock of CPV is trading below the average of its 52-weeks’ low and high level of $0.050 and $0.335, respectively, proffering a decent opportunity for accumulation. The stock of CPV has delivered a negative return of 6.9% in the span of the last six months, while in the previous one month, the stock price run up 22.73%. On TTM basis, the stock is trading at a Price to Book multiple of 2.4x, lower than the industry mean (Basic Materials) of 2.8x, indicating that the stock is undervalued at the current juncture. The products of the company can be used to achieve considerable energy and cost savings and have a highly scalable business model, suggesting opportunities for future growth. Considering the returns, trading levels, decent growth opportunities and low price to book multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.150, up 11.11% on 11 May 2020. 
 
 
Comparative Price Chart (Source: Refinitiv,Thomson Reuters)

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