Talga Group Limited 

TLG Details

Q2FY21 Result Highlights: Talga Group Limited (ASX: TLG) produces graphite, anode, and develops graphene production technology. TLG is a developer of rechargeable battery materials such as anodes (Talnode®), graphene (Talphene®) products, and advanced graphite (Talphite®). Currently, it is engaged in the operation of anode project and exploration of minerals in Sweden. As on 8^th February 2021, the market capitalisation of the company stood at ~$439.68 million. During Q2FY21, the company changed its name to Talga Group Limited. Over the quarter, TLG signed a non-binding tripartite Letter of Intent (LOI) with LKAB and Mitsui & Co. Europe Plc for jointly developing Vittangi Anode Project (VAP). TLG signed another MOU contract with ABB in November for construction and development on the project.

During Q2FY21, TLG raised $25 million funds from an institutional placement at $1.45 per share fully underwritten by Morgan Stanley. Simultaneously, TLG also raised $53.5 million from an oversubscribed Share Purchase Plan (SPP) of $30 million to accelerate multiple project and product developments. The company received $61k as cash receipts from customers and $24.24 million of cash from financing activities during the quarter. At the end of Q2FY21, the company had cash reserve of $32.4 million as on 31^st December 2020.

Cash Flows from Financing Activities, Q2FY21 (Source: Company Reports)

Outlook: On VAP, TLG is expected to undertake and finish a definitive feasibility study (DFS) till March 2021. ABB will work with TLG & its partners to extend engineering support for the VAP DFS, finishing till March 2021. ABB will develop an extensive suite of production control and process solutions for Talga’s operations, expected to begin FY23. TLG will commence first drilling program on VAP and Jalkunen project in Q1FY21. The company plans to deploy the $25 million funds raised for the construction of electric vehicle anode (EVA) qualification sample and a pilot plant in Luleå in Sweden to be functional in the latter half of 2021. 

Valuation Methodology: Enterprise Value to Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of TLG gave a positive return of 195.11% in the past six months, and a positive return of 233.33% in the past one year. The stock of TLG has a support level of ~$1.43 and a resistance level of ~$1.577. We have valued the stock using Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a correction of low double-digit (in % terms). For the purpose, we have taken peers like Novonix Limited (ASX: NVX), Syrah Resources Limited (ASX: SYR), Pilbara Minerals Limited (ASX: PLS), to name a few. Considering stock’s significant returns in the past 6 months and 1-year, negative ROE, and valuation, we are of the view that the stock might have factored in most of the positives of the company. Hence, we suggest investors to wait for better entry level and give an ‘Expensive’ rating on the stock at the current market price of $1.5, up by 3.448% on 8^th February 2021.

TLG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Advance Nanotek Limited

ANO Details

1HFY21 Result Highlights: Advance Nanotek Limited (ASX: ANO) is a producer of zinc oxide dispersions, zinc oxide powder, and aluminium oxide powder for the personal care industry. As on 8^th February 2021, the market capitalisation of the company stood at ~$238.15 million. The company reported a profit before tax of $90,000 for 1HFY21. The company is experiencing considerable rise in sales orders and reported $540k profit before tax for the month of January 2021. During 1H21, ANO has developed 15 new bulk intermediate products, vegan and/or organic based, comprising of a natural insect repellent purely funded from its current cashflow and installed higher production capacity. The company is advancing for listing on NASDAQ with the completion of due diligence of ANO contracts, and 30% draft documentation to the shareholders.

FY20 Result Highlights: The company reported revenue of $17.96 million for FY20, up by 46% Y-o-Y basis. It has registered a loss after tax of $5.32 million in FY20 versus $9.63 million in FY19. ANO has witnessed an increasing top-line and bottom-line during FY16-FY20. It generated net cashflows of $120k from operations and held $259k cash reserves as on 30 June 2020.

5-Year Financials Summary, FY16-FY20 (Source: Company Reports)

Outlook: ANO is preparing samples for distribution for the aforesaid 15 new products and is awaiting TGA licence to commence full-scale production of these products. The company anticipates sales of the 15 new products to drive the financial results of FY22. The company is also planning on launching a premium range of dispersions based on its current dispersions to customers in FY22.

Stock Recommendation: The stock of ANO gave a negative return of 11.73% in the past three months and a positive return of 15% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $2.92. The stock of ANO has a support level of ~$3.57 and a resistance level of ~$4.24. On a TTM basis, the stock of ANO is trading at a price to earnings multiple of ~44x as compared to the industry (Consumer Non-Cyclicals) average of ~114.4x and is thus undervalued. Considering the current trading levels, profit for 1H20, improving top-line and bottom-line during FY16-FY20, decent outlook for FY21, TTM valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $3.910, down by 1.512% on 8^th February 2021.

ANO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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