Stocks’ Details

SDI Limited

Increased Investment in Sales & Marketing:SDI Limited (ASX: SDI) is engaged in the manufacturing and distribution of dental restorative materials, whitening systems, and other dental materials.

Performance Highlights: During the half year ended 31^st December 2019, the company saw the investments made in sales & marketing and research, returning benefits to the business. The period reported strong growth in key product categories and regions. Sales for the period came in at $40 million, representing an increase of 7.7% on the prior corresponding period. Profit after tax was reported at $3.5 million, up 11.9% on the prior corresponding period. During the period, the company reported significant growth in sales of non-Amalgam products. North America, that is a major market for non-Amalgam products, faced a challenging half. Whitening sales in the region are expected to see recovery in the second half, on the back of introduction of new premium packaging and a new marketing campaign. The Board declared an interim dividend of 1.35 cents per share, 0.15 cents higher than pcp.


Financial Summary (Source: Company Reports)
 

Sales by Business Unit (Source: Company Reports)
 
Outlook: Going forward, the company will continue to invest in research and development and expects to launch at least one new product in FY21.In FY20, sales are expected to follow the same trend, with Aesthetic and Whitening products reporting strong growth and Amalgam products being in the red zone. Equipment sales are expected to improve with new market rollouts.
 
Stock Recommendation: The stock of the company generated returns of 27.27% over a period of 6 months. During 1HFY20, the company reported a rise of 12% in operating expenses, partially due to increased sales and marketing, promotion and research expenses, which resulted in new increased sales and growth in Aesthetic products. The investments in research are aimed at adding new products on the platform, going forward. In 1HFY20, the company had a gross margin of 66.2% as compared to the gross margin of 60.9% in pcp. Net margin for 1HFY20 was also higher than pcp at 8.8%. Considering the above factors, we give a “Hold” recommendation on the stock at the current market price of $0.940, down 4.082% on 26^th February 2020.
 

Orbital Corporation Limited

Significant Progress on the back of LTA with Insitu:Orbital Corporation Limited (ASX: OEC) provides integrated propulsion systems and flight critical components for tactical unmanned aerial vehicles (UAVs). The company recently released an announcement notifying about the appointment of David Bonomini as the Chief Financial Officer and Company Secretary.

Preliminary Results: The company released an update on the preliminary results for the six months ended 31^st December 2019. Unaudited preliminary revenue for the period came in at $11.4 million, backed by shipments of Orbital UAV’s initial engine model, forming part of OEC’s long term agreement with Insitu Inc. The result also came on the back of significant investment made on the UAV strategy and the company is now in process of building the momentum for the second engine model that will further add to its revenue and profitability. In January 2020, the company confirmed the shipping of the second engine model under the long-term agreement with Insitu. The company is expected to benefit from a large UAV Defence Market, with predicted UAV production of $128 billion over the period covering 2017 -2026.


UAV Market Outlook by Teal Group Corporation (Source: Company Reports)

Guidance: Revenue for full year FY20 is expected in the range of $25 million - $35 million, as compared to FY19 revenue of $15.25 million.

Valuation Methodology: EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company generated positive returns of 48.53% over a period of 1 month and is currently approaching the mid-point of its 52-week trading range of $0.280 - $0.705. The company is looking forward to new customer opportunities in the growing defence market. Under the LTA with Insitu Inc, a subsidiary of The Boeing Company, OEC already has two engine models in production and is now focused on the development of the third engine. Considering the above factors, we have valued the stock using EV/Sales based relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms).Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.450, down 10.891% on 26 February 2020.
 

Azure Healthcare Limited

1HFY20 Revenue up by 12.1%:Azure Healthcare Limited (ASX: AZV) is engaged in the development of software and manufacturing of hardware for healthcare and electronic communication systems.

Interim Results: During the half year ended 31^st December 2019, the company reported growth across all key metrics, backed by an increase in software and software maintenance agreements, that represented 14% of the total revenue.Performance in Australia was impacted by the deferral of investment decisions by Aged care operators, which is expected to improve in the second half. In USA, the company witnessed encouraging growth. Net profit after tax came in at $809,000, as compared to a loss amounting to $465,000 reported in pcp. At the end of the period, the company had a cash balance of $6.06 million, providing sufficient funds to pursue growth strategies in FY20 and beyond.


1HFY20 Financial Results (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of 15.38% over a period of 1 month and is currently trading close to its 52-week high of $0.125. During 1HFY20, the company continued to develop innovative products, with a new product set to launch in March 2020. In addition, the company also carried out the upgradation of existing products to enhance user experience. Recently, it has entered into a 3-year agreement with a major healthcare and hospital operator in the US, to supply Tacer0061 IP nurse call systems and support to a large base of hospitals. Given the backdrop of the above factors, we have a watch stance on the stock at the current market price of $0.115, up 9.524% on 26^th February 2020, owing to the release of half yearly results.

Tesserent Limited

Recent Acquisitions to Drive Growth:Tesserent Limited (ASX: TNT) provides cyber security and networking solutions to customers in Australia, UK and Korea.

December Quarter Highlights: During the quarter ended 31^st December 2019, the company reported an uplift of 160% in revenue, with continued growth expected in Q3 and Q4. In Q3FY20, revenue is expected to double to $7.4 million on the back of contribution from acquisition of Pure Security and north BDT. FY20 revenue is expected to exceed $22.25 million. Receipts from customers in Q2 went up by 57% on the prior corresponding period, with cash at the end of the period amounting to $3.73 million.


Performance Highlights (Source: Company Reports)

Outlook: The company is looking forward to complete the acquisition of north BDT in March 2020, that contribute to financial results in the years ahead. By 30^th June 2020, the company expects to achieve a forward revenue run-rate of $40 million. This is supported by a number of goals, including strong organic growth across all business units, potential strategic acquisitions, continued integration of the acquired businesses, etc.
Stock Recommendation: The stock of the company generated returns of 70% over a period of 6 months and is currently trading above the average of its 52-week trading range of $0.039 - $0.110. The company has an EV/Sales multiple of 6.9x, which is higher than the industry median of 4.7x. Considering the performance in Q2FY20, growth expected in the coming quarters, plans in pipeline, current trading levels, and valuation, we have a watch stance on the stock at the current market price of $0.076, down 10.588% on 26^th February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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