Stocks’ Details
 

Cleanaway Waste Management Limited

Growing Portfolio of Prized Infrastructure Assets: Cleanaway Waste Management Limited (ASX: CWY) provides total waste management services and resource recovery. The market capitalisation of the company stood at $3.8 Bn as on 20^th May 2020. The company operates a growing portfolio of prized infrastructure assets throughout the waste management value chain and makes investment in value chain extensions to capture the value and to enhance the strategic moat of the business. As per the recent trading update released on 24 March 2020, the current financial performance for FY20 is in line with its internal forecasts and FY20 earnings guidance. Further, the company has not experienced any material change in volumes in any of its operating segments. During 1H FY20, the company reported underlying net revenue amounting to $1,070.0 million, up 0.5% on pcp. Further, the company reported gross revenue of $1,197.2 million for H1FY20, up 4.1% on pcp.


Financial Performance (Source: Company Reports)

Suspension of Guidance: Cleanaway Waste Management Limited has suspended its earnings guidance for FY20 because of the increasing uncertainty in the market around the impact of COVID-19, especially in the SME segment. As of now, the company anticipates strong demand for other services like health, municipal collections, and related post-collections services. 

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The company has paid an interim dividend of 2.0 cents per share despite the uncertainty in the market. As a part of its Footprint 2025 Strategy, CWY has wrapped up the acquisition of SKM and commenced the integration of the same. Moreover, the integration of Toxfree is on track. The company possesses a strong balance sheet and significant liquidity, with the available headroom of more than $357 million at the end of February 2020 under its existing banking facilities. We have valued the stock using a P/CF multiple based illustrative relative valuation methodand arrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Bingo Industries Ltd (ASX: BIN), ALS Ltd (ASX: ALQ), Qube Holdings Ltd (ASX: QUB), etc. Therefore, considering the strong balance sheet, significant liquidity, and growing portfolio of prized infrastructure assets, we give a “Buy” recommendation on the stock at the current market price of $1.845 per share, down by 0.27% on 20^th May 2020.

Advance Nanotek Limited

Update on Patent Application: Advance Nanotek Limited (ASX: ANO) is engaged in the development and manufacturing of advanced materials products. Recently, the company’s securities resumed trading on ASX, following the release of a response to the ASX Query letter in relation to the Patent Update. The release stated that the company has received the report from MSL Solution Providers in London and the results are in line with the expectations of the Board, which are confirming the underlying science in the patent application jointly owned with Astivita Limited. ANO and Astivita are seeking to commercialise the first product using zinc and hinokitiol (the subject of the patent application) which both the companies are planning to market in Europe via Amazon UK.

As of now, ANO is unable to forecast the impact on revenue from royalties and the success of Astivita’s product. Further, it does not expect to have a material effect on the results of FY20. The below picture gives an overview of revenue during 1H FY20:


Revenue (Source: Company Reports)

Higher Profits Expected for Year Ahead:  For FY20, the company expects the net profit before tax to be around $8.4 million, which is 2.5x higher as compared to FY19 profit before tax. This forecast is based on the anticipated turnover of $18 million on FY19.

Stock Recommendation: The company has established stockpiles in a central US logistics facility to take benefits of the expected upturn in market conditions. ANO has also received two new orders from Merck which has doubled their orders for CY20 to $3.2 million. During 1H FY20, gross margin and EBITDA margin of the company stood at 61.6% and 42.9%, reflecting YoY growth of 7.0% and 10.5%, respectively. Current ratio of the company stood at 3.96x in 1H FY20, up 3.4% on a YoY basis. This implies that the company has improved its position to address its short-term obligations. The stock of ANO has provided a return of 6.51% within the span of one month. On TTM basis, the stock is trading at EV to Sales multiple of 15.5x, lower than the industry average (Consumer Non-Cyclicals) of 15.3x.

Hence, considering the expected higher profits in FY20, new orders from Merck, commercialisation of first products jointly by ANO and Astivita, and improved liquidity position, we give a “Buy” recommendation on the stock at the current market price of $5.190 per share, up by 5.703% on 20^th May 2020.

Clover Corporation Limited

Benefits from Favourable Exchange Rates: Clover Corporation Limited (ASX: CLV) is involved in the manufacturing and supply of functional food ingredients containing LCPs to the healthcare and nutritional markets. The market capitalisation of the company stood at $372.53 Mn as on 20^th May 2020. Recently, the company provided a trading update, wherein it stated that it has experienced strong demand from customers globally, with a rise in forecast demand coming in the last quarter from infant formula manufacturers. The company believes that consumers are buying additional products which has depleted the pipeline fill into distribution warehouses and retail outlets. CLV has also witnessed benefit from favourable movements in the exchange rate with most of the company’s sales transacted in US dollars.  Due to the increased volume and improved trading terms, the company recorded a net profit after tax of $4.6 million in H1FY20, reflecting a rise of 3.4% on pcp.


Financial Summary (Source: Company Reports)

Stronger 2H FY20 Expected: The company anticipates demand patterns to return to a more normalized pattern in the upcoming financial year. The Board of CLV currently anticipates strong performance in 2H FY20 on the back of expected demand patterns.

Stock Recommendation: Net margin of the company stood at 12.3% in 1H FY20 as compared to 13.1% in 1H FY19. The stock of CLV is trading at a P/E multiple of 36.130x as compared to the industry median (Consumer Non-Cyclicals) of 9.3x on TTM basis. CLV has EV/Sales ratio of 4.5x against the industry median of 1.7x on TTM basis. Thus, it can be said that the stock of CLV is overvalued at current juncture. Based on the above factors, we give an “Expensive” recommendation on the stock at the current market price of $2.530 per share, up by 12.946% on 20^th May 2020. It looks like the stock is up due to the release of a trading update (as explained above).

Alliance Aviation Services Limited

A Quick Look at Trading Update:Alliance Aviation Services Limited (ASX: AQZ) provides fly-in, fly-out transportation to the mining and energy sector. The market capitalisation of the company stood at $274.06 Mn as on 20^th May 2020. The company has recently updated the market that it has undertaken pioneering measures as a response to COVID-19, which now have been adopted broadly in the aviation industry. The swift and flexible response has allowed the company to capitalise on additional demand for flights in the resource sector.With respect to Charter revenue, the company has witnessed a substantial rise in demand for the charter services after the outbreak of COVID-19. The following picture gives an overview of the performance of 1H FY20:


Key Financials (Source: Company Reports)

Future Guidance: Considering the weakness in the current market, the company expects that the revenue from Aviation Services during 2H FY20 to be marginally lower than 1H FY20. The company forecasts to report a Profit Before Tax (PBT) of more than $40 million during FY20.

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

P/BV Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The extra cash generated by the increase in the forecast result, is expected to further enhance the already strong net debt and Balance Sheet position and reduce the gearing level of AQZ. The stock of AQZ is inclined towards its 52-week higher levels of $3.020. We have valued the stock using a Price to Book Value multiple based illustrative relative valuation method and arrived at correction of high single-digit (in percentage terms). Thus, considering the weakness in the current markets, expected correction and current trading levels, we give an “Expensive” rating on the stock at the current market price of $2.660 per share, up by 23.721% on 20^th May 2020.

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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