Stocks’ Details

Michael Hill International Limited

Boost in Digit Sales: Michael Hill International Limited (ASX: MHJ) is a jewellery retail company operating around 300 stores across Australia, New Zealand and Canada. As at 29 May 2020, the company’s market capitalisation stood at ~$124.09 million. In a recent business update, the company informed that it is witnessing a significant boost in sales from its digital business, signaling a notable shift in consumer behaviour in the jewellery category. In order to harness this opportunity, the company has implemented several digital initiatives to continue to attract new customers and maintain the momentum.

Reopening of Stores: Due to Covid-19 restrictions, the company had temporarily suspended operations at its 301 stores. However, now that some Governments are relaxing their restrictions, the company has decided to reopen its stores in all markets with safety protocols in place. In Australia, the company is targeting to reopen all selected stores by early June.

CEO Update: In a recent update, the company had informed that its CEO, Mr. Daniel Bracken, is going to require a period of a few weeks away from the business. Hence, the company has appointed the current Chief Financial Officer, Andrew Lowe as Acting CEO for this period.

Q3FY20 Update: In the first nine weeks of Q3FY20, the company delivered same store sales growth of 3.1%, relative to pcp. During the same period, the Australian segment same store sales increased by 1.8% and the New Zealand segment same store sales increased by 3.5%. The company’s gross margin percentage improved compared to prior year, with gross margin increasing by 2.2% for the first nine weeks of Q3FY20, relative to prior year. 


Q3FY20 Revenue for retail operations (Source: Company reports)

Stock Recommendation: The company has maintained its strong product and supply chain relationships throughout the Covid-19 period, to ensure that it is well placed when it reopens its stores. The stock of MHJ has declined by 52.94% in the past six months and is trading near its 52-week low of $0.220, offering investors a decent opportunity for accumulation. On TTM basis, the stock is trading at a Price to Earnings multiple of 6.4x, lower than the industry average (Consumer Cycles) of 18.1x. Further, the stock is trading at a Price to Book Value multiple of 0.7x, lower than the industry average of 1.8x.  Considering the aforesaid facts, the company’s resilient business with decent fundamentals, its strong product and supply chain relationships, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.330, up by 3.125% on 29 May 2020. 

XCD Energy Limited

Off-market Bid from 88 Energy: XCD Energy Limited (ASX: XCD) is an Australian oil and gas company, focussed on early stage exploration assets located on the North Slope of Alaska. 88 Energy recently announced an off-market bid for all the fully paid ordinary shares and listed options in XCD Energy Limited. 88 Energy is offering 2.4 new 88 Energy Shares for each XCD Share and 0.7 new 88 Energy Shares for each XCD Listed Option. The XCD Directors have recommended that, in the absence of any Superior Proposal and subject to the Independent Expert opinion, this offer is reasonable.

Reducing Cost Base: In response to the current challenging environment, the company has decided to reduce its cost base and eliminate all non-essential costs from the business. The company’s non-executive directors have agreed to defer 50% of their fees effective from 1 April 2020 and the Managing Director has agreed to use accrued annual leave equating to around 50% net deferment of salary over the next two months.

Improved Royalty for Project Peregrine: Recently, XCD Energy’s net entitlement interest was marginally increased to 86.2% following the reduction in the Overriding royalty interest (ORRI) percentage. In a recent update, the company announced that ERC Equipoise (ERCE) has completed a review of the risking post Harpoon drilling which has increased the chance of success (COS) for both the Merlin and Harrier Prospects. The updated volumes and risks associated with the Project Peregrine Prospects are presented in the table below-


(Source: Company Reports)

Stock Recommendation: The company is currently in a relatively stable financial position with cash at bank of $1.2 million as on 31 March 2020 and zero debt. In the past three months, XCD’s stock has increased by 43.75% on ASX and is trading close to 52 weeks high price of $0.016. On TTM basis, the stock is trading at a price to book value multiple of 1.1x, in-line with Industry median (Energy). Considering the company’s ongoing off-market bid from 88 Energy and the current trading levels, we suggest investors to keep an eye on the stock and adopt a watch stance on the stock at the current market price of $0.011 on 29 May 2020. 

LiveHire Limited

Awarded Victorian State Government Contract for Staff Deployment: LiveHire Limited (ASX: LVH) is a recruitment services provider mainly involved in the provision of cloud-based human resources software and platform services. On 26 May 2020, the company announced that it has won a contract with the Victorian State Government, under which the State Government will use LiveHire’s platform to profile, match, and engage current employees in order to transition them into critical roles across the State Government, in support of internal staff mobility. This contract is ~8x average Annualised Recurring Revenue (ARR) per client across LiveHire clients.

Earlier on 28 April 2020, the company had announced that it has won latest Direct Sourcing contract in North America which could add more than half a million candidate profiles to the LiveHire ecosystem in the region.

Conversion of Performance Rights: The company recently announced that it has converted 235,000 unlisted performance rights into fully paid ordinary shares, following the satisfaction of the relevant vesting conditions applicable to those Performance Rights.

March Quarter Update: For the March 2020 Quarter, the company had recorded an ARR of $3.3 million, an increase of 34% YoY. During the quarter, the company added 9 new clients, bringing the total number of clients to 106. Further, the 12-month trailing cash receipts stood at $3.9 million, representing 27% YoY growth. During the quarter, the company reported cash outflows of $4.43 million, in line with expectations. At the end of the quarter, the company had cash on hand of $23.4 million with zero debt in the balance sheet.


March Quarter Highlights (Source: Company Reports)

Stock Recommendation: In the last three months, the company’s stock has increased by 27.50% on ASX, but has declined by 15% in the last one month. The company has a growing pipeline of Direct Sourcing prospect clients, where its technology is uniquely placed as a disruptive innovation that delivers high ROI to clients in this growth market. On TTM basis, the stock is trading at a Price to Book Value multiple of 2.6x, lower than the industry average (Technology) of 4.6x. Considering the company’s growing pipeline of Direct Sourcing prospect clients, its recent contract wins, and decent March quarter performance, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.265, up by 3.922% on 29 May 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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