Spheria Emerging Companies Limited 

Weekly NTA Update: Spheria Emerging Companies Limited (ASX: SEC) is a small-capAustralia-based investment company with the market capitalization of around $113.44 Mn as of February 22, 2019. The company’s portfolio mainly consists of Australia and New Zealand’s small and micro-cap companies and proffers higher returns in the long-term than its peers. Recently, the Group posted estimated Net Tangible Assets (NTA) per share before tax of $2.021 as on February 15, 2019 while NTA per share after tax amounted to $2.057, representing a decent rise of 3.4% and 2.4%, respectively as compared with last week. In another release on ASX, the company had also reported operating loss amounting to $9.2 million for 1H FY 2019. It was mainly impacted by weaker market conditions as well as difficult December quarter. The global markets have witnessed a fall in the half year and the losses got accelerated in the quarter ended December. However, the Board of Directors declared fully franked interim dividend of 2.0 cents per share and it will be paid on 20 March 2019 with a record date of 6 March 2019. Further, the company’s intention is to pay a dividend to shareholders at least annually, subject to available profits, cash flow, and franking credits.


Pre-tax NTA Trend Since 29 December 2017 (Source: Company Reports)

Correction in Markets Provided Significant Opportunities: Spheria Emerging Companies Limited had stated that correction in markets has presented with significant valuation opportunities. There are expectations that takeover activity thematic might continue as there happen to be increased levels of liquidity with the private equity players. Also, the company added that the portfolio is in a strong position from the perspective of valuation and is diversified throughout attractive sectors.

Stock Recommendation: On the daily chart of SEC, Moving Average Convergence Divergence or MACD has been applied and default values were used for the purposes. After observation, it was noticed that the MACD line has crossed the signal line and had trended in the upward direction after the crossover reflecting the bullishness. Therefore, there are expectations that the company’s stock price might witness a rise moving forward.

However, the global markets are still sensitive to the macro factors like trade battle between the US and China. Also, there are worries about the global economic slowdown in the investors’ minds. Based on the above factors, we advise investors to carefully watch the stock at the current market price of A$1.720 per share (marginal up by 0.585% on 22 February 2019).
 

Phoslock Environmental Technologies Limited 

Vesting Conditions Achieved: Phoslock Environmental Technologies Limited (ASX: PET), formerly known as Phoslock Water Solutions Limited, engaged in water technologies and engineering solutionsto manage nutrients and other water pollutants.Founded in 2002, the company is headquartered in Sydney, Australia and the group is being currently headed by Mr. Robert Schuitema – Managing Director (MD), Company Secretary & Executive Director. Recently, the company had published a release which states that vesting conditions for 15 million performance options issued to the executives as well as consultants of the company has been achieved. In April 2017, the options were issued and ratified by the shareholders in the month of June 2017. The exercise price for each option happens to be 10.5 cents. Recently, the company had posted an update about business progress for six months ended December 2018. The company’s revenues amounted to $9.3 million reflecting the rise of 50% on the YoY basis. The company’s net cash used in the operating activities amounted to $4.425 million in the December 2018 quarter. As at 31 December 2018, the group had a cash and cash equivalent of $4.927 Mn.


December 2018 Quarter (Source: Company Reports)

The company is having a decent position with respect to its key margins as these have witnessed an improvement on a YoY basis in FY 2018. Its net margin, in FY 2018, stood at 0.7% reflecting a YoY improvement of 0.7% which demonstrates the company’s capability of converting its top line into the bottom line. In FY 2018, its EBITDA margin stood at 7.4% which reflects a 80.9% YoY rise.

What to Expect From PET: The company had stated that its shareholders have agreed to change the financial year end to December 31, so that the alignment of key business units can be done.The fully audited annual accounts would be prepared for six months period (i.e. July 1, 2018-December 31, 2018) which would be released to Australian Securities Exchange in February 2019 end. The AGM would be conducted in May 2019.

Stock Analysis: On the daily chart of Phoslock Environmental Technologies Limited, Moving Average Convergence Divergence or MACD has been applied and default values were used for the purposes. After careful observation, it was noticed that MACD line has crossed the signal line and had trended in the downward direction after the crossover reflecting bearishness. Also, the stock happens to be quite volatile as, in the last one year, it had delivered the return of 30.90% while, in the span of previous 6 months, the stock posted the return of -23.40%. However, in the past one month, the stock of the company had posted the return of 7.46%.  By looking at volatility in the stock over the past few months, we advise the market players to watch the stock at the current market price of A$0.360 per share (down 5.263% on 22 February 2019).
 

Roto-Gro International Limited 

Trading at higher level: Roto-Gro International Limited (ASX: RGI) had recently issued a release stating that Global Fertigation Solutions, which happens to be a wholly-owned subsidiary of Roto-Gro International Limited, had secured the purchase order from Frozen Penguin Medical Industries Inc. for around CAD$130,000.  Also, Roto-Gro World Wide (Canada) Inc. had announced the completion of the state-of-the-art laboratory which is located at RGI’s Research and Development Facility in Caledon, Ontario, Canada. Roto-Gro World Wide (Canada) Inc. is the wholly-owned subsidiary of Roto-Gro International Limited (or RGI). However, in the quarter ended December 2018, the company’s net cash used in the operating activities amounted to $1.02 million.

 
Net Cash Used in Operating Activities (Source: Company Reports)

The company’s net margin has demonstrated significant improvement in FY 2018 on the YoY basis which reflects the company’s capability to convert its top line into the bottom line. Also, the company happens to be in a decent liquidity position when compared to the broader industry. The company’s current ratio, in FY 2018, stood at 2.30x which is higher than the industry median of 1.34x reflecting its decent position, as compared to the industry, to meet its short-term obligations.

Focus on Acquisitions to Drive Growth: Roto-Gro International Limited has been maintaining the focus towards expanding into industry synergistic opportunities, exploring the strategic partnerships as well as complimentary acquisitions with respect to related markets. We expect that these acquisitions are expected to support the company’s overall growth moving forward.

Stock Recommendation: On the daily chart of Roto-Gro International, Moving Average Convergence Divergence or MACD has been applied and default values were used for the purposes. After observation, it was noticed that the MACD line has crossed the signal line and had moved in the upward direction after crossover which reflects the bullishness. However, in the past three months, the company’s stock has delivered the return of -37.93% while, in the previous six months, it posted the return of -25.0% but traded at the higher level. Given the backdrop of mix scenario,we have a watch stance on the company’s stock at the current market price of A$0.270 per share.  
 

Affinity Energy and Health Limited

A Look at Recent Update: Affinity Energy and Health Limited (ASX: AEB) had issued a release and, in accordance with ASX Listing Rule 17.2, had requested an extension of voluntary suspension of the securities which got effective from commencement of trading on February 19, 2019. The company stated that the reason for extension for voluntary suspension is for AEB to finalise its capital raising as well as announcement in respect of it. The company had requested that voluntary suspension continues till the commencement of trading on February 26, 2019 or the release of the announcement with respect to the matters mentioned (whichever is earlier). The company’s net cash from the operating activities stood at A$998,920.  


Net Cash from Operating Activities (Source: Company Reports)

Positive View for Future: The top management of AEB had stated that December quarter was difficult for the market as well as for the cannabis sector. The stock prices of cannabis have been weaker globally and there has been a challenge to garner appropriate funding. However, they added that in beginning of the new year there has been a slight recovery which gives optimism for the year.

Stock Recommendation: On the daily chart of AEB, Relative Strength Index or RSI has been applied and default values were used for the purposes. It was noticed that 14-day RSI has started to rebound from the oversold levels. As a result, the company’s stock price might witness a rise in moving forward. However, the company’s stock has posted the return of -50% in the span of previous 6 months and, in previous 3 months, the stock’s return was -35.71% and the downward trend is continuing. Based on the foregoing, it is worth to watch the stock at the current price of $0.009 as the group aims to finalize its capital raising event in the upcoming period. 

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