Stocks’ Details
 

Mainstream Group Holdings Limited

Decent Increase in Funds under Administration: Mainstream Group Holdings Limited (ASX: MAI) provides global outsourced fund administration and custody services to a range of wealth management sector participants. As on 5 March 2020, the market capitalisation of the company stood at ~$63.28 million. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported an increase in revenue by 7% to $26.7 million. This was driven by new client win, existing client fund launches and custody income. In the same time span, funds under administration (FUA) of the company stood at $187 billion, reflecting a growth of 27% on pcp. The increase in FUA is backed by annual growth in net inflows and funds under custody.


1H20 Financial Performance (Source: Company Highlights)

Future Expectations and Growth Opportunities: MAI is well-positioned for continued growth because of considerable opportunities from consolidation in the Australian fund admin and custody sector. The company is targeting to achieve a full-year revenue of $55 million and has revised its EBITDA guidance to $9 million. MAI is strategising to reward shareholders with dividends and anticipate partial franking levels.

Valuation Methodology: Price to Book Value Based Valuation

Price to Book Value Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of MAI is trading close to its 52-week low of $0.430, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin witnessed a slight improvement on 1H19 and stood at 10%, up from 9.6% in 1H19. In the same time span, current ratio of the company stood at 2.22x, higher than the industry median of 1.42x. Considering the trading levels, improvement in EBITDA margin and decent growth opportunities, we have valued the stock using price to book value per share and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.480 on 5 March 2020.

Carnarvon Petroleum Limited

Strong Financial Position with No Debt: Carnarvon Petroleum Limited (ASX: CVN) is engaged in the exploration and production of oil and gas. As on 5 March 2020, the market capitalisation of the company stood at ~$398.92 million. During 1H20, the company made significant progress in the landmark Dorado Project and has also completed the acquisition of a 3D seismic survey. CVN ended the year with a strong financial position with no debt and cash balance of $119.11 million. The higher closing cash balance was due to lower than planned Dorado drilling costs. 


Position of Current Assets (Source: Company Reports)

Update on Dorado 3D Seismic Data: The company announced that it has received the first preliminary data set from 2019 Keraudren 3D seismic survey and has achieved the objective of providing superior quality data. The work has commenced towards the FEED (Front End Engineering Design) phase while the assessment of other prospects will continue throughout the year.

Stock Recommendation: As per ASX, the stock of CVN is trading close to its 52-week low level of $0.220, proffering a decent opportunity for the investors to enter the market. The strong cash balance with no debt and minimal commitments will comfortably allow the company to cover its all planned expenditures in 2020. During 1H20, Assets/Equity ratio of the company stood at 1.01x, lower than the industry median of 2.15x. On the TTM basis, the stock is trading at a Price to Book Value multiple of 2.5x, lower than the industry average (Energy) of 6.1x.Considering the current trading levels, lower Assets/Equity ratio and strong balance sheet, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.245, down by 3.922% on 5 March 2020. 

Horizon Oil Limited

Strong Position of Balance Sheet: Horizon Oil Limited (ASX: HZN) is engaged in exploration, development and production of petroleum. As on 5 March 2020, the market capitalisation of the company stood at ~A$89.84 million. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported production volume of 754,862 bbls and sales revenue of US$53 million. The company has reported a strong balance sheet with cash balance of US$22 million and has reduced its Net Debt by 89% to US$7.4 million.  


1H20 Operational and Financial Highlights (Source: Company Reports)

What to Expect: The company remains poised for seizing growth opportunities. HZN has provided guidance for FY20 and expects production in the range of 1.4-1.5 mmbbls and a similar sales volume. The company also anticipates generating revenue in between US$90 million to US$100 million with EBITDAX (Earnings before Interest, Tax, depreciation, amortisation and exploration expenditure) of US$50-60 million. 

Stock Recommendation: As per ASX, the stock of HZN is trading close to its 52-weeks’ low level of $0.064, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin of the company stood at 53.5%, higher than the industry median of 34.8%. In the same time span, current ratio of the company was 1.65x as compared to the industry median of 1.06x. On the TTM basis, the stock is trading at a price to book multiple of 0.8x, lower than the industry (Energy) median of 1.1x. Considering the curent trading levels, higher EBITDA margin and modest outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.071, up by 2.899% on 5 March 2020.

Xref Limited

Record Credit Sales and Addition of New Clients: Xref Limited (ASX: XF1) develops human resources technology which automates the candidate reference process for employers. As on 5 March 2020, the market capitalisation of the company stood at ~$37.39 million. 

The company has recently announced that Lee-Martin John Seymour has acquired 243,864 shares on 4 March 2020 at a consideration of $49,980. The company has recently released its interim results for the period ending 31 December 2019, wherein it reported record credit sales of $4.6 million and generated revenue of $3.42 million, reflecting an increase of 20% on pcp. The company has also launched Xref Lite to reach a wider pool of organisations and has added 190 new clients during 1H20.


1H20 Financial Performance (Source: Company Reports)

CVCheck and Xref Alliance Phase One Goes Live: XF1 and CVCheck has announced the live launch of phase one in their strategic alliance. Clients can now access CVCheck’s solutions at Xref’s platform, bringing a full background screening solution to the company’s customers.

Stock Recommendation: As per ASX, the stock of XF1 is trading close to its 52-weeks’ low level of $0.175, proffering a decent opportunity for accumulation. Over the span of 4 years from FY15 to FY19, the company witnessed a substantial improvement in EBITDA and net margin. During FY19, current ratio of the company witnessed an improvement over the prior year and stood at 1.31x, up from 1.22x. Considering the trading levels, improvement in margins and decent operational performance, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.22, up by 4.762% on 5 March 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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