Stocks’ Details

ALS Limited

Decent Liquidity Position: ALS Limited (ASX: ALQ) is engaged in providing professional technical testing services to the global minerals, life sciences, energy and industrial sectors.

Update on COVID-19 Impact: The company recently notified that it is well positioned to navigate the financial impact of the COVID-19 pandemic and has resorted to an increase in its existing bank debt facilities to boost liquidity. The company has introduced several cost management initiatives, including reduction in capital expenditure, elimination of discretionary spending, and lay off of over 15% of the employees. The company also informed about the development of new real-time polymerase chain reaction (PCR) test kits for detection of the COVID-19 virus in human and on surface samples. Development of the kits is currently in the final stage.

During the half year ended 30^th September 2019, the company reported organic revenue growth of 7.3%. EBIT for the period increased by 7.9% and stood at $154.9 million. NPAT for the period exceeded the guidance and stood at $98.2 million, up 5.3% on pcp.


1HFY20 Financial Summary (Source: Company Reports)

Guidance: The company reaffirmed its FY20 guidance for underlying NPAT between $185-195 million as compared to FY19 underlying NPAT of $181 million.

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

EV/Sales Multiple Based Relative Valuation Approach (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 corrected by 29.46% in the last three months and is currently trading close to the average of its 52-week’s trading range of $4.360 - $10.195. After the increase in bank facilities, the new liquidity level of over $650 million, places the Group in a solid position to finance its operations and to meet the maturation of a US Private Placement (USPP) debt tranche, due at the end of the CY20. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with limited upside (in percentage terms). Hence, we suggest investors to wait for further catalysts to drive the stock and adopt a watch stance on the stock at the current market price of $6.75, down 0.735% on 6^th May 2020.
 

Monadelphous Group Limited

Focus on Maintaining Business Continuity:Monadelphous Group Limited (ASX: MND) is engaged in the provision of engineering services within Australia.

Market Update: The company recently informed that it is taking the necessary measures to proactively manage the business through COVID-19 led uncertainties to ensure the safety of its employees and sustain business continuity. The Engineering Construction division has experienced supply chain issues causing delays on construction projects currently in progress, as well as a number of temporary deferrals to potential new construction contract award dates. The Maintenance division experienced a material reduction in activity levels, particularly in fly in fly out operations with customers reducing non-essential work, delaying discretionary maintenance expenditure and deferring shutdowns. Therefore, the company is unable to provide any revenue guidance for FY20. If the activity levels continue to remain the same, FY20 revenue is expected to be in line with pcp.

Update on Water Infrastructure Business:Due to contract disputes and disappointing levels of profitability in several water projects, the company has decided to discontinue its New Zealand operations, which will enable a reduction in costs and increased focus on improving the quality of its earnings from the water sector. 

During the first half, the company reported a rise of 2.6% in revenue to $852 million. Net profit after tax came in at $28.5 million, reflecting a strong performance from the Maintenance and Industrial Services division.


1HFY20 Results (Source: Company Reports)

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

P/BV Multiple Based Relative Valuation Approach (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 corrected by 44.72% in the last three months and is inclined towards its 52-weeks low level of $8. The company will continue to make efforts in protecting business against the current market turmoil and has put across a cost reduction plan to ensure the maximum possible productivity and profitability across the platform. We have valued the stock using P/BV multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have considered peers such as Downer EDI Ltd (ASX: DOW), CIMIC Group Ltd (ASX: CIM), and Bingo Industries Ltd (ASX: BIN). Hence, we give a “Buy” recommendation on the stock at the current market price of $9.90, up 3.34% on 6^th May 2020.

BINGO Industries Limited

Medium-Term Outlook Remains Strong:BINGO Industries Limited (ASX: BIN) is a fully integrated recycling and resource management company focussed on providing solutions across the entire waste management supply chain.

Business Highlights: During the quarter ended 31^st March 2020, the company reported solid cash collection and improved cash conversion on a YTD basis. The company exited the period with a strong balance sheet, backed by ~$700 million of property, plant and equipment. Amid the rising impact of COVID-19, the company has taken pro-active cost management initiatives, including the deferral of all nonessential capex, reduction in operating costs and a cash management focus.


Summary of Headwinds & Tailwinds (Source: Company Reports)

Outlook:The company’s medium-term outlook remains strong, with growth expected out of full year contribution from Mortdale and Patons Lane advanced recycling equipment, full year benefit of 24 hour operations at West Melbourne, continued organic growth in the C&I business, entry into QLD, and recovery in the residential market. For FY21, the company is focused on generating a strong operating free cash flow and is anticipating a capital outlay well below the previous years.           

Valuation Methodology: P/E Multiple Based Relative Valuation Approach (Illustrative)


P/E Multiple Based Relative Valuation Approach (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 corrected by 16.42% in the last three months and is currently trading close to the average of its 52-weeks low and high level of $1.47 - $3.47. The company possesses strong fundamentals and remains well positioned in an industry characterised by favourable long term structural and regulatory foundations. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit in percentage terms. For the purpose, we have considered peers such as Downer EDI Ltd (ASX: DOW), CIMIC Group Ltd (ASX: CIM), and Cleanaway Waste Management Ltd (ASX: CWY). Hence, we give a “Buy” recommendation on the stock at the current market price of $2.17, down by 5.24% on 6^th May 2020.

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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