AMA Group Limited

AMA Details 

H1FY21 Result Highlights: AMA Group Limited (ASX: AMA) is engaged in providing automotive aftercare services and accessories in Australia and New Zealand.

For the first half ended 31 December 2020, the company has witnessed a 19.3% YoY increase in its revenue and other income from continuing operations to $435.1 million underpinned by a 15.2% increase in revenue from Vehicle Panel Repairs to $405.7 million and a 145.7% increase in revenue from Automative Parts & Services to $29.3 million. The normalised EBITDA for the interim period increased by 111.9% YoY to $46.07 million on the back of 92.3% YoY increase in EBITDA from Vehicle Panel Repair to $41.8 million but there was a decline of 361.3% YoY in EBITDA from Automative Parts & Services to $1.6 million. The company recorded a profit of $7.87 million for the period as against a loss of $4.4 million in the pcp.

Key Data (Source: Company Reports)

Key Risks: The company is exposed to risks like changes in preference for public transport and mobility as well as prolonged COVID-19 economic recovery that would hurt its financial performance.

Outlook: The company has stated that the vehicle volumes are near pre-Covid levels. These are anticipated to continue to improve and could support the company in the new financial year. The business has been benefiting from the increased usage of the private vehicles as compared to the public transport as well as there happens to be an increase in the domestic drive holidays. The company is compliant with the banking covenants, and it anticipates to remain compliant.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After the previous week of a strong closing, the stock has given a stronger closing at $0.585 for the ongoing week thereby exhibiting resilience. The technical indicator RSI with a reading around 47 and a curve at the end point a sharp up, suggests the gaining of bullish momentum.

Going forward, the stock may have resistance around the 50% retracement level of $0.66 whereas support could be around the lower Bollinger band of $0.45.

Stock Recommendation: The stock rose by ~5.45% in 9 months. It has made a 52-week low and high of $0.423 and $0.895, respectively.

We have valued the stock using Price/Earnings Per Share multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight discount to Price/Earnings Per Share Multiple (NTM) (Peer Average) considering continuing impact and uncertainties of the COVID-19 pandemic as reflected from an average decline in vehicle panel repairs volume in H1FY21 down by 27% YoY. For the purpose of relative valuation, we have taken peers like Cleanaway Waste Management Ltd, BSA Ltd, among others.

Considering the growth strategies, focus on augmenting its geographic coverage, and strong liquidity position, we give a “Buy” recommendation on the stock at the current market price of A$0.580 per share, up by 10.476% on 26^th May 2021.

Metgasco Limited

MEL Details

H1FY21 Result Highlights: Metgasco Limited (ASX: MEL) is an energy company and is engaged in the business of oil and gas exploration activities along with appraisal, development, and commercialisation of oil and gas assets.

The company has delivered a turnaround in profitability during the half-year ended 31 December 2020 and net profit after tax from continuing operations improved to $0.31 million as compared to the net loss of $0.30 million in H1FY20. The profit also comprised of an unrealised profit from its investment in Byron Energy Limited totalling $0.38 million. The liquidity position of the company stayed robust with a cash balance of $2.10 million and zero debt at the end of 31 December 2020.

Consolidated Income Statement (Source: Company Reports)

Key Risks: The exploration activities in the Cooper Basin having PRL237 license have been deferred to Q3 CY2021 and the joint venture will continue to suffer minimum costs during this deferment period.

Outlook: The company remains focused on pursuing new exploration, development, and production opportunities in 2021. It has set out plans of drilling at least two exploration wells namely; Odin in PRL211 and Cervantes in CY2021. Meanwhile, the company confirms that the logging data at Vali-2 confirmed the presence of gas in the Toolachee and Patchawarra formations and the company is hoping for an increase to the certified Vali Field reserves. Meanwhile, the farm-out process has commenced for ATP2020 with various parties are in the process of reviewing the data room.

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

For the past 5-6 weeks, the stock has been trading in a narrow range provided by the converging point of 61.8% retracement level and 20 periods SMA of $0.027 on the upside and the lower Bollinger band of $0.022 on the downside. For the ongoing week, the stock has given a flattish close at $0.024. The technical indicator RSI with a reading around 46 and a flattish curve at the end suggests flattening of momentum for the stock.

Going forward, the stock may have resistance around $0.027 whereas support could be around $0.022.

Stock Recommendation: The stock rose by ~9.6% in 6 months. It has made a 52-week low and high of $0.019 and $0.039, respectively.

The Vali joint venture has bagged consent from ACCC during the quarter ended 31 March 2021. The specific approval was towards jointly marketing and selling of gas from the Vali field to customers based on common terms and conditions including price.

Besides, it expects to bag the final drilling approval with regards to Cervantes(L14) in Q2 CY2021 after the advancement of environmental and safety drilling approval applications to state government authorities during the quarter.

Thus, we give a “Buy” recommendation on the stock at the current market price of A$0.024 per share, down by 4.001% on 26^th May 2021. 

Austal Ltd 

ASB Details 

H1FY21 Results Performance: Austal Ltd (ASX: ASB) is an Australia-based global shipbuilder and defence contractor engaged in the business of designing, constructing, and supporting revolutionary defence and commercial vessels.

The company has posted a 19.1% YoY decline in revenue during H1FY21 to $840.3 million driven by the impact of FX fluctuations and lower US throughput. However, it has delivered 17.6% YoY growth in its EBIT to $70.5 million assisted by the strength of the USA and Australasia margin. The growth in EBIT contributed to 28.7% YoY growth in NPAT to $52.4 million for the interim period.

Meanwhile, the company has increased the interim unfranked dividend to 4.0 cents per share, a growth of 33% over the FY20 interim dividend.

Financial Snapshot (Source: Company Reports)

Delivery of Boats: The company, on 14 May 2021, declared that Austal Australia has delivered two Capeclass Patrol Boats to the Trinidad and Tobago Coast Guard (TTCG). Earlier, on 10 May 2021, it has delivered the tenth Guardian-class Patrol Boat (GCPB) to the Australian Department of Defence.

Key Risks: The adverse impact of COVID-19 has restricted the mobility of commissioning engineers and it has resulted in delays in supply chain logistics channels which led to delays to vessel deliveries. Further, travel restrictions have restricted its ability to conduct maintenance support activities.

Outlook: The cash position of the company continues to remain strong with a net cash position of $260.2 million at the end of December 2020 after taking into consideration the $42.8 million of higher capital expenditure and $16.9 million in dividends. The company has deployed capital to make strategic investments in the capacity building to enhance its ability to add its healthy $2.9 billion order book. Further, its balance sheet strength will help in capturing new opportunities in USA steel shipbuilding and additional maintenance support contracts. Meanwhile, it has maintained its earlier guidance for FY21 EBIT of $125 million while it has lowered its revenue guidance to around $1.65 billion owing to the impact of appreciating AUD, reduced USA support activities, and COVID-19 related program delays in Australasia.

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

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

In line with the bullish reversal chart pattern formed in the previous week, the stock has given a stronger closing at $2.36 for the ongoing week. The technical indicator RSI with a reading around 42 and a curve at the end point a sharp up, suggests the gaining of bullish momentum for the stock.

Going forward, the stock may have resistance around the 38.2% retracement level of $2.70 whereas support could be around the lower Bollinger band of $2.23.

Stock Recommendation: The stock declined by ~21.21% in 6 months. It has made a 52-week low and high of $1.980 and $3.860, respectively.

We have valued the stock using EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight discount to EV/Sales multiple (NTM) (Peer Median) considering the reduction in its FY21 revenue guidance as COVID-19 delays pushed revenue into FY22. For the purpose of relative valuation, we have taken peers like PTB Group Ltd (PTB.AX), Xtek Ltd (XTE.AX), Quickstep Holdings Ltd (QHL.AX), to name a few. Its continued strong cash position, prudent capital management and balance sheet strength will enable the company to invest in the business for its next phase of growth.

Thus, we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.340 per share on 26^th May 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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