Stocks’ Details
 

Gentrack Group Limited

2HFY20 to be Cash Flow Positive:Gentrack Group Limited (ASX: GTK) is primarily engaged in the development, integration, and support of enterprise billing and customer management software solutions for the utility and airport industries.

1HFY20 Results:During the half-year ended 31^st March 2020, the company generated NZ$50.6 million in revenue, down 7% on the prior corresponding half. Underlying EBITDA was in line with the guidance and stood at NZ$4.3 million. Results were impacted due to supplier failure or acquisition in the UK that led to the loss of a number of customers. A decline in non-recurring revenue from the UK and Australia was another factor shaping the top line. Committed Recurring Revenue went up by 11% and stood at NZ$29.7 million.

The company notified that COVID-19 did not have a material impact on its operations in 1HFY20, but has recorded delays in some projects, as clients witnessed financial pressure.During the period, the Group reported an operating cash flow of NZ$8.6 million, driven by working capital improvement, especially in the UK.


H1FY20 Key Metrics (Source: Company Reports)
 
2HFY20 Outlook: In the second half, the company expects EBITDA to be ahead of the first half, due to benefits derived from reduced people costs. Uncertainty surrounding the impact of COVID-19 on clients in the Utilities sector has raised the risk of further failures and consolidation. In the Airports segment, Veovo revenues are getting impacted due to travel restrictions. 

Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation(Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company gave positive returns of 19.72% in the last one month and is currently inclined towards its 52-week low level of $0.770. In the long term, the company’s SaaS products are expected to deliver cost savings and improved operations and efficiency to customers, which will result in consistent profit growth for Gentrack Group. We have valued the stock using the EV/Sales multiple based relative valuation approach and arrived at a target price with an upside of low double digit (in percentage terms). For the purpose, we have considered peers like Hansen Technologies Limited (ASX: HSN and Serko Limited (ASX: SKO). Considering the backdrop of the above factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.725, up 1.471% on 4^th June 2020.

DroneShield Limited

Decent Cash Position: DroneShield Limited (ASX: DRO) is a worldwide leader in drone security technology. In a recent update, the company announced that the voting power of Regal Funds Management Pty Ltd reduced from 10.51% to 8.82%, on 28^th May 2020. In another shareholder update, it was notified that Bergen Global Opportunity Fund, LP, Bergen Asset Management, LLC and Eugene Tablis, together known as Bergen, ceased to be a substantial holder in the company.

New Tender Secured: The company’s DroneGun Tactical™ product has been recently selected by the European Union police forces, in a competitive tender organised by the Belgium Police. DroneShield expects that the agreement will produce material sales over an extended period of time, with orders commencing in the June’20 quarter.

R&D Funds Agreement:In another update, the company announced an agreement with R&D Capital Partners Pty Ltd, to avail funds equivalent to the majority of the Research and Development Tax Incentive expected to be received from the Australian Government for the period ending 31 December 2020. In May 2020, the company is expecting to receive an R&D Grant of ~$880,000 for the R&D activities in 2019. Combined expected proceeds from the 2019 R&D Tax Incentive and the loan related to the 2020 R&D Tax Incentive, will be utilised towards further research & development, sales & marketing and working capital purposes.
Quarterly Highlights: During the quarter ended 31^st March 2020, business activities were impacted by the outbreak of coronavirus, leading to customer cash receipts of $424,000, substantially below expectations due to short-term delays in logistics, installation approvals and payments, and postponements of customer travel.The crisis, however, did not result in cancellation of any customer orders or any potential customers declining to buy from the company.


Operating Cash Flow (Source: Company Reports)
 
Outlook: The company expects second quarter gross cash outflow to be ~$2.03 million, impacted by the timing of cost reductions and the company’s existing commercial obligations. As the situation normalises, the company is expecting to convert its substantial pipeline into new orders and is eyeing a considerable increase in revenues.

Stock Recommendation: The stock of the company gave positive returns of 27.27% in the last one month and is currently inclined towards its 52-week low level of $0.084. The company believes that it is sufficiently funded to meet its capital requirements for the calendar year 2020, with a cash balance of ~$3.57 million as on 31^st March 2020. On TTM basis, the stock has an EV/Sales multiple of 8.4x, against the industry average (Industrials) of 24.2x.Considering the above factors, along with the recent developments in the business and a modest outlook, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.140 as on 4^th June 2020.

Buddy Technologies Limited

Capital Raise to Drive Growth:Buddy Technologies Limited (ASX: BUD) is a leading provider of IoT and cloud-based solutions, with two core businesses, namely Commercial and Consumer, trading under the Buddy Ohm, Buddy Managed Services and LIFX brands.

Share Placement Update: The company recently completed a successful bookbuild and received commitments for a placement to institutional and sophisticated shareholders and investors. The placement will involve the issue of 200 million fully paid ordinary shares to raise $2 million, which will be utilised to incur operating expenses and drive business growth.

LIFX Secures New Orders: The company’s consumer business brand, LIFX, received purchase orders worth $700k, to support the initial stocking requirements for LIFX White Smart Lights in Europe. The company expects that this order will be replenished with subsequent orders in due course and will support its 2020 growth plans in Europe.

Equity Financing Agreement: Earlier, in May, the company entered into a share purchase agreement with New York based institutional global small cap investor, CST Investments Fund, to avail $12.5 million of working capital funding by way of a tranched equity-backed finance facility over a period of 24 months. The facility may increase up to an additional $11.5 million over two years, taking the total facility amount to $24 million. The funding will enable Buddy Technologies to fully navigate the COVID-19 pandemic and to fuel outsized growth, if needed.

Quarterly Update: During the quarter ended 31^st March 2020, the company reported customer revenues of $4.3 million, which was 7 times more than the prior corresponding quarter, but 68% down from the previous quarter. Customer cash receipts came in at $8.3 million, up 17 times on pcp and down 21% on a sequential basis. Results were significantly impacted by COVID-19, with gross sales down 42.5% on a yoy basis.


Change in Revenues & Expenses (Source: Company Reports)
 
Stock Recommendation: The stock of the company gave positive returns of 22.22% in the last one month and is currently trading close to its 52-week low level of $0.006. On TTM basis, the stock is trading at an EV/Sales multiple of 1.3x, lower than the industry median (Technology) of 4.2x. With the closure of retail locations, the company’s online sales increased significantly through April, making it the best non-holiday sales month for LIFX’s Australian website. The substantial yoy increase in revenue and cash receipts, underpinned by LIFX acquisition and the re-organisation of the commercial business division. Despite the above factors, the management will continue to adopt a conservative approach to business. Considering the above scenario, we are keeping a close watch on the key catalysts that will drive the stock price, going forward. Hence, we have a watch stance on the stock at the current market price of $0.012, up 9.091% as on 4^th June 2020.

Silver Mines Limited

Capital Raise Worth $12 Million:Silver Mines Limited (ASX: SVL) engages in the acquisition, exploration and development of quality silver projects. The company recently completed a capital raise of $12 million, issuing 120,000,000 fully paid, ordinary shares to institutional, professional and sophisticated investors. Proceeds from the issue will be used for the pre-development progression of the company’s flagship Bowdens Silver Mine.

Development Application for the Bowdens Silver Project:The company recently lodged the Development Application (DA) and Environmental Impact Statement (EIS) for the proposed development of the Bowdens Silver Project, with the New South Wales Department of Planning, Industry and Environment. The proposal involves an open-cut mine feeding a new processing plant with a conventional milling circuit and differential flotation to produce two concentrates that will be sold for smelting off site. The Plant will have a capacity of 2.0 million tonnes per annum with a project life of 16.5 years.

Exploration Drilling Update: In April, the company notified about the laboratory assay results from the first drill hole, BD20001, at the Bowdens Silver Project. The hole indicated the potential for mineralised zones of higher grade within a large mineralised envelope and intersected widespread sphalerite (zinc iron sulphide), galena (lead sulphide) and silver mineralisation, including zones with appreciable gold mineralisation.

Cash Flow Highlights for the March Quarter: During the three months ended 31^st March 2020, cash used in operating activities amounted to $542k. Cash and cash equivalents at the end of the quarter stood at $5.48 million.


Operating Cash Flows (Source: Company Reports)
 
Stock Recommendation:The stock of the company gave positive returns of 32.53% in the last one month and is currently trading above the average of its 52-week trading range of $0.040 - $0.155. In 1HFY20, the company had a debt/equity multiple of 0.01x, as compared to the industry median of 0.21x. Gross margin for the half stood at 62.5%, higher than the industry median of 47.1%, implying decent fundamentals. The submission of the Development Application represents a major milestone for the company and is expected to result in considerable local economic benefits. Considering the recent updates, decent fundamentals, and current trading level, we are keeping an eye on the developments in the business and subsequent price movements. Hence, we have a watch stance on the stock at the current market price of $0.099, down 10% on 4^th June 2020.
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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