Stocks’ Details

Pointsbet Holdings Limited

Recommencement of Key Australian Sports: Pointsbet Holdings Limited (ASX: PBH) offers innovative sports and racing betting products and services directly to clients via its scalable cloud-based technology platform. As on 27 May 2020, the market capitalization of the company stood at ~$773.35 million. The company noted that the National Rugby League and the Australian Football League would re-commence the 2020 season on 28 May 2020 and 11 June 2020, respectively. This will expand the product offering of the company in Australia. PBH has also entered into an agreement to become the exclusive wagering partner for Fox Sports AFL. This will deliver efficient client acquisition and increased betting volumes.

Positive Trend of AU Business in Q4:Despite the significant disruption by COVID-19, the company showed a positive trend in the Australian Trading business in Q4. The Australian Trading business and the US business have achieved Net Win of $18.2 million and $0.3 million, respectively for the period 1 April 2020 to 25 May 2020. This was mainly due to a shift of gambling spend online because of retail venue closures, an outperformance of racing turnover growth and improvement in the overall product offering. 

First Positive EBITDA Quarter for Australian Trading business: During Q3FY20, the company witnessed strong growth of 97% in its turnover to $268.7 million and an increase of 147% in net win to $18.8 million. PBH has increased its active clients to 106k, from 65k in the pcp.


Quarterly Operational Highlights (Source: Company Reports)

Stock Recommendation: As per ASX, the stock of PBH gave a return of 11.21% in the past six months and a return of 36.76% in the last one month. The stock is also inclined towards its 52-weeks high level of $6.65, but still holds further potential for growth. During 1H20, gross margin of the company witnessed an improvement over the previous half and stood at 44.8%, up from 28.6% in 2H19. Considering the decent returns in the past six months, financial resilience amidst the global pandemic, and recommencement of AU sports, we recommend a ‘Hold’ rating on the stock at the current market price of $5.34, up by 5.534% on 27 May 2020, owing to its recent release regarding the sports schedule.

Downer EDI Limited

Downer Expands Fortescue Relationship With $450m Contract: Downer EDI Limited (ASX: DOW) designs, builds and sustains assets, infrastructure and facilities and is a leading provider of integrated services in Australia and New Zealand. As on 27 May 2020, the market capitalization of the company stood at ~$2.71 billion. The company has expanded its relationship with Fortescue Metals Group with the new agreement of $450 million over five years. Under the agreement, DOW will complete early works operations over two years and will provide maintenance services for a further three years.

Half Year Results: During 1H20, revenue of the company went up by 2.9% to $6.50 billion but witnessed a decline of 19.9% in EBITA to $214.8 million. In the same time span, NPATA of the company was $115.5 million, and basic earnings per share stood at 13.9 cents.

 
1H20 Financial Highlights (Source: Company Reports)

Impact of COVID-19: The distancing measures have reduced the productivity and the travel restrictions have changed the work practices in the mining sector. However, there was no material impact on various business operations of the company, including power and gas, water, telecommunications, etc. 

Valuation Methodology: Price to Earnings Multiple Approach (Illustrative)

Price to Earnings Multiple Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Despite the outbreak of the global pandemic, most of the group’s businesses are in a good spot. The significant Government customer base is a real asset for the company. As per ASX, the stock of DOW gave a return of 22.91% in the past one month and is trading close to its 52-weeks’ low level of $2.585. During 1H20, gross margin of the company stood at 43.5%, higher than the industry median of 30.6%. Considering the decent returns in the past one month, trading levels, and a new agreement with FMG, we have valued the stock using the price to earnings multiple based relative valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.56 on 27 May 2020.

People Infrastructure Ltd

Decent Increase in Revenue and EBITDA: People Infrastructure Ltd (ASX: PPE) provides workforce management, contracted staffing, recruitment, and human resources outsourcing services. As on 27 May 2020, the market capitalization of the company stood at ~$186.47 million. During 1H20, the company reported a strong performance delivering a significant increase in earnings to shareholders. During the half-year, normalized EBITDA of the company went up by 54.4% to $13 million, and normalized NPATA witnessed an increase of 49% to $9 million. 


1H20 Financial Highlights (Source: Company Reports)

What to Expect: PPE is a diversified organization which is servicing clients across a broad range of sectors. It is focusing on driving growth where it can demonstrate a clear point of difference in its product and services offering. The company expects its FY2020 normalized EBITDA to be in the range of $24 million to $25 million. 

Valuation Methodology: EV/EBITDA Multiple Approach (Illustrative)

EV/EBITDA Multiple Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Despite the fallout of the global pandemic, the company continued to generate profits and has significant headroom under its debt facilities. As per ASX, the stock of PPE gave a return of 41.98% in the past one month. During 1H20, net margin of the company witnessed an improvement over the previous half and stood at 3.3%, up from 2.6% in 2H19. Considering the decent returns in the past one month, negligible impact of COVID-19 on the operations and EBITDA guidance, we have valued the stock using the EV/EBITDA multiple based relative valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.180, up by 4.808% on 27 May 2020. 

NOVONIX Limited

Equity Raising: NOVONIX Limited (ASX: NVX) is engaged in the development and implementation of a downstream integration strategy transforming the business into a supplier of advanced battery materials, equipment, and services. As on 27 May 2020, the market capitalization of the company stood at ~$86.28 million. The company has recently announced the capital raising of $58.28 million via a proposed placement to institutional investors, a strategic placement and an accelerated non-renounceable entitlement offer. Net proceeds will fund expansion capex to scale proprietary anode material production, facilitate development and commercialization of the DPMG technology, repay short term loans etc.

Quarterly Update: During the quarter ended 31 March 2020, the company completed the installation and commissioning of its first commercial production line and saw many collaboration opportunities with new global tier 1 company partners/customers. During the quarter, cash used in operating activities stood at $1.08 million.

 
Quarterly Cash Flow Statement (Source: Company Reports)

Impact of COVID-19: The company has commenced the restart of the anode manufacturing plant and the NOVONIX BTS in Canada operated with split shifts. All elements of the business continued with minimal impact of COVID-19. However, the company anticipates delays in its sales cycles.

Stock Recommendation:During 1H20, gross margin of the company went up to 17.2% in 1H20 from a negative margin in 2H19. However, the stock is trading at a price to book value multiple of 5.4x, higher than the industry average (Industrials) of 4.3x. Considering the current trading levels, higher price to book value multiple and the impact of COVID-19, we recommend investors to keep an eye on the business activities and suggest a watch stance on the stock at the current market price of $0.66 on 27 May 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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