Stocks’ Details

ALS Limited

Decent Growth in Revenue: ALS Limited (ASX: ALQ) is engaged in the provisioning of professional technical testing services to global minerals, life sciences, energy, and industrial sectors. The market capitalisation of the company stood at $3.87 billion as on 29^th July 2020. The resilience of ALQ’s business places it in a decent position to navigate through the impact of the current economic environment, as well as to capitalise on opportunities that may arise. For FY20 (year ended 31 March 2020), the company reported revenue of $1,831.9 million, up 10.0% on the previous year. Further, the company reported an underlying net profit after tax (NPAT) from continuing operations of $188.8 million, which stood within the guidance range of $185 million to $195 million. This was mainly due to strong organic growth by the Life Sciences and Industrial divisions. The Life Sciences business of ALQ managed to deliver revenue of $939 million with a growth of 13% over pcp. While the commodities division experienced organic revenue growth of 0.6% despite Geochemistry sample flows declining by 9% in FY20.

Key Financials (Source: Company Reports)

Decent Position for Future Growth: ALQ is well-positioned to withstand through the COVID-19 pandemic, and the key elements of its long-term strategy remain on track despite the short-term challenges associated with COVID-19. Moreover, the company is in a decent position for future growth with supportive long-term market trends, including further outsourcing of testing services and increased testing in some areas as the global economy emerges from the COVID-19.

Key Risks: The company is exposed to numerous financial risks such as liquidity risk, interest rate risk, foreign exchange risk, and credit risk. ALQ has developed treasury and cash management policies to mitigate these risks. In addition, the Commodities business of ALQ operates in a cyclical resources sector with fluctuations in commodity prices and global demand.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: ALQ ended FY20 with available liquidity of around $650 million, including a $200 million increase of debt facilities agreed with banks. Debt to equity of the company stood at 1.32x in FY20, reflecting YoY growth of 81.0%. The stock of ALQ has moved up by 26.06% and 21.30% within the last one and three months, respectively. As a result, the stock is inclined towards its 52-week high level of $10.195. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with correction of high single-digit (in percentage terms). Therefore, considering the leveraged balance sheet, upside movement in stock in the past months, current trading levels and valuation, we have a wait and watch stance on the stock at the current market price of $8.290 per share, up by 3.238% on 29^th July 2020.

Freelancer Limited

Decent Growth in Revenue and GPV: Freelancer Limited (ASX: FLN) is engaged in the operation of online freelancing, outsourcing and crowd sourcing marketplace. The market capitalisation of the company stood at ~$282.99 million as on 29^th July 2020. The company generated its revenue by users posting jobs as a project or as a contest. During 1H FY20, the company reported net revenue amounting to $29.5 million with a rise of 3% over 1H FY19. The company’s unaudited Gross Payment Volume (GPV) stood at $417 million in 1H FY20, up 4% on 1H19. FLN posted a net operating loss after tax amounting to $1.1 million as compared to the profit of $0.2 million of 1H FY19.

Net Revenue (Source: Company Reports)

Positive Impact from COVID-19: Till now, FLN has not witnessed any material negative effect on its business and operations from COVID-19. The Company is expecting a positive impact on revenue and Gross Payment Volume as a result of increased adoption of its marketplace by organisations transitioning to a remote work environment.

Key Risks: The company’s business is sensitive to market risk (including currency risk), credit risk and liquidity risk. As the group is operating internationally, this leads to foreign exchange risk arising from various currencies. Credit risk arises from the default of counterparties on their contractual obligation while the liquidity risk is influenced by the inability of the group in paying its debt payments.

Stock Recommendation: During 1HFY20, the company inked MSAs (Master Service Agreement) and/or SOWs (Statement of Work) with major companies in the professional services, FMCG, chemicals and robotics industries. FLN has an EV/Sales multiple of 4.7x as compared to the industry average (Industrials) of 26.4x on TTM basis. Thus, considering the growth in GPV and revenue, expected positive impact from COVID-19, we give a “Hold” recommendation on the stock at the current market price of $0.600 per share, down by 4% on 29^th July 2020.

Quickstep Holdings Limited

A look at June 2020 Quarter: Quickstep Holdings Limited (ASX: QHL) is engaged in the manufacturing of advanced carbon fibre composites. The market capitalisation of the company stood at ~$62.78 million as on 29^th July 2020. For Q4 FY20, the company reported sales of $24.6 million, taking the total full-year sales to $82.3 million, up 12% on the previous year. The operating cash flow for the June 2020 quarter stood at $1.7 million, reflecting strong deliveries over the 3 months to June 2020 on the back of volume ramp up across all three key contracts.

Operating Cash Flow (Source: Company Reports)

Outlook: The company anticipates a strong outlook for FY21, wherein, it anticipates customer revenues to rise in the range of 5 and 10%, excluding any new major contract wins. QHL expects commercial aerospace production volumes to stabilise in the upcoming 12 months and progressively recover through FY23.

Key Risks: QHL is exposed to supply chain disruption due to COVID-19 and to mitigate this risk, the company is carrying a higher level of raw materials inventory than originally planned.

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

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of QHL has corrected by 32.31% in the past six months and is inclined towards its 52 weeks low price, offering a decent opportunity for accumulation. At the end of Q4 FY20, cash and cash equivalent of the company stood at around $1.7 million. The net bank debt declined by $0.2 million to $6.4 million at 30 June 2020. We have valued the stock using the P/E multiple based illustrative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the decreased debt balance, decent sales growth and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.087 per share, down 1.136% on 29^th July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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