Stocks’ Details
 

Qualitas Real Estate Income Fund

Performance Update for May 2020: Qualitas Real Estate Income Fund (ASX: QRI) is a listed investment trust which is engaged in investing in secured real estate loans in Australia and New Zealand. As on 18 June 2020, the market capitalization of the company stood at ~$326.97 million.As on 15 June 2020, Net Tangible Asset (NTA) per unit of the Qualitas Real Estate Income Fund was $1.6039. As on 31 May 2020, the Trust reported an invested capital of 87% with a short-weighted duration for the portfolio of 0.6 years. This will provide flexibility for the Trust to reinvest capital into new loans and existing loan extensions. During the month, total loan repayments amounted to $3.2 million.

During the month of May 2020, QRI delivered a net return of 5.73% p.a. It delivered on its key investment objective of a cash payment of monthly income to unitholders with the May distribution return of 6.02% p.a., demonstrating a healthy return at a premium to the RBA cash rate.


QRI Historical Performance (Source: Company Reports)

Investment Strategy and Objective: The company is targeting a return of 8% p.a. (net of fees and expenses), and to provide monthly cash income, capital preservation and portfolio diversification. It seeks to accomplish its objective by investing in a portfolio of investments that offers exposure to commercial real estate loans secured by first and second mortgages.

Key Risks: The company is exposed to credit risk and volatilities. The company manages the credit risk of loans by undertaking a detailed process of assessing the parties before entering into transactions and frequently monitors credit exposure. Market risk with respect to change in fair value of future cash flows of a financial instrument due to change in variables such as interest rates and equity prices also impact the company’s business.

Stock Recommendation: QRI has a disciplined approach to generate strong risk adjusted returns for its investors. As per ASX, the stock of QRI gave a negative return of 10.49% on the YTD basis and a positive return of 9.02% in the past one month. The stock is trading above the average of its 52-weeks’ trading range of $1.015-$1.774. Considering the current trading levels, volatile returns, and softer market conditions due to the pandemic, we recommend our investors to wait for the price correction and suggest a watch stance on the stock at the current market price of $1.460, up by 0.69% on 18 June 2020.

DroneShield Limited

DroneShield Chosen by the European Union Police: DroneShield Limited (ASX: DRO) is a worldwide leader in drone security technology and has developed the pre-eminent drone security solution that protects people, organizations, and critical infrastructure from intrusion. The company has announced that it has been selected as the preferred solution by the European Union police forces. Under the agreement, DroneGun Tactical^TM is expected to be rolled out across a range of police units across the European Union.

Quarterly Update: During the three months ended 31 March 2020, the company did not face any decline in potential customers and delivered products of $4.2 million. DRO converted one of its sales opportunities into a $460,000 initial order from a major U.S. Governmental agency. During the quarter, the company expanded the range of its customers and its sales pipeline and received $424,074 from its customers. 


Cash Used in Operating Activities (Source: Company Reports)

Key Risks: The company has not been immune to the global pandemic. The global crisis has dampened the company’s customer cash receipts during the quarter. Short-term delays in logistics due to the travel restrictions, installation approvals and payments, and postponements of customer travel may further impact the performance of the company.

Stock Recommendation: The global crisis did not result in any cancellations of the customer orders. The company is fortunate that most of its customers are Government agencies, hence, it is not likely to face any disruptions in orders. DRO expects steady-state cost base and expects that its existing cash balance is sufficient to meet its capital requirements. As per ASX, the stock of DRO gave a return of 15% in the past one month and is trading close to its 52-weeks’ low level of $0.084. On a trailing Twelve Months (TTM) basis, the stock is trading at a price to book value multiple of 4.4x, lower than the industry average (Professional & Commercial Services) of 7.2x. Considering the current trading levels, decent returns in the past one month, and continuous orders despite the pandemic, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.115 on 18 June 2020.

Buddy Technologies Limited

LIFX Launches in Costco UK and EU: Buddy Technologies Limited (ASX: BUD) is engaged in the design, development, and marketing of global data exchange. As on 18 June 2020, the market capitalization of the company stood at ~$28.48 million. The company has recently announced that it has launched sales of its LIFX smart lights with Costco UK and has completed its first major retail launch in Portugal. The deal marks the first availability of LIFX smart lights in the Portuguese market.

Quarterly Update: During the quarter ended 31 March 2020, revenue of the company was 7x over the prior period and stood at $4.3 million. In the same time span, the company reported a negative adjusted EBITDA of $4.4 million. This was substantially impacted by the global pandemic.



Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The black swan event of COVID-19 resulted in economic and social impact, which further resulted in a significant decline in revenues. The main risk arising from the group’s interest-bearing financial instruments is cash flow interest rate risk and foreign currency risk.

Stock Recommendation: Significant expansion in Europe has been achieved rapidly and profitably. However, the softer market conditions and the increasing effect of COVID-19 may impact the performance of the company in the near future. The stock is trading at attractive levels close to its 52-weeks’ low price of $0.006 but has limited potential for growth given the uncertain environment. As per ASX, the stock of BUD gave a negative return of 60.71% in the past six months and a negative return of 8.33% in the last one month. Considering the current trading levels, volatile returns in the past six months, gloomy environment and decline in revenues, we recommend our investors to keep an eye on the business activities and suggest a watch stance on the stock at the current market price of $0.013, up by 18.182% owing to its recent update regarding the launch of LIFX in the UK and EU. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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