Austin Engineering Limited

ANG Details

Relocation of Headquarters: Austin Engineering Limited (ASX: ANG) is engaged in the manufacture, repair, overhaul and supply of mining attachment products. The market capitalisation of the company as on 10 June 2021, stood at ~$69.60 million. As per a recent announcement, the company has updated that it will be relocating its headquarters from Brisbane to Perth, which will place it closer to operations in Western Australia and Asia. The move will also give the company's management closer access to several customers. The company has also started a strategic review to determine the organic and inorganic growth opportunities.

H1FY21 Results Update: During the period, the company has reported normalised EBITDA of $6.3 million from continuing operations, reflecting an increase of ~32% on the pcp. The underlying NPAT stood at $1.5 million. The working capital requirements was on the higher side during the period with operating cash outflow of $6.8 million, and is expected to provide a cushion in H2FY21.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The management guidance for underlying NPAT is above $9 million for FY21. The company is anticipating growth in East Coast of Australia, Indonesia, and Perth due to the pipeline of opportunities and existing orders that will support growth in FY22. 

Key Risk: Due to the COVID-19 pandemic, the company has been adversely impacted in its operations. Other macro issues like China trade sanctions also poses a risk to the functioning of the company.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: During H1FY21, the company has recorded an increase in net debt by $12.6 million to $15.4 million to support working capital that stimulates the activities in the Asia-Pacific region. The stock of ANG is trading below its average 52-weeks' levels of $0.115-$0.190. The stock of ANG gave a positive return of ~4.166% in the past one weak and a negative return of ~26.47% in the past six months. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average P/E (NTM Trading multiple), considering the impact of COVID-19 on the macro environment and further uncertainty going forward. For this purpose, we have taken peers such as Acrow Formwork and Construction Services Ltd (ASX: ACF), MaxiTRANS Industries Ltd (ASX: MXI), Korvest Ltd (ASX: KOV), to name a few. Considering the current trading levels and expected upside in valuation levels, pipeline opportunities, strategic use of working capital, optimistic outlook and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.130, up by ~8.33%, as on 10 June 2021.

ANG Daily Technical Chart, Data Source: REFINITIV

Pearl Global Limited

PG1 Details

Q3FY21 Financial Performance: Pearl Global Limited (ASX: PG1) deals in the reclamation of waste rubber and converts tyres into secondary products like fuel oil, steel, carbon char, and energy. The market capitalisation of the company as of 10 June 2021 stood at $22.31 million. As per a recent financial update, the company gained ~50% to $397k in cash receipt from customers, compared on quarter on quarter basis. During the quarter, the company signed a 5-year sales agreement with a major Queensland asphalt producer, Stanley, and there has also been improvements to terms with its offtake partner, Aussee. The cash position of the company stood at $5.7 million as of 31 March 2021. 

Q3FY21 Cashflow from Operating Activities (Source: Company Reports)

Outlook: The company expects an increase in production and sales of energy, carbon and steel products. in FY21. Australia's Recycling and Waste Reduction Act 2020 (Cth) received approval to ban the export of waste plastic, paper, glass, and tyres that could support the company's operation.

Key Risk: Due to machine downtime, the company had a lower production for the quarter. Therefore, the company should invest in its technology to keep it updated. The COVID-19 pandemic has also impacted the company operations due to a lack of workforce and decreasing demand.

Stock Recommendation: The company has appointed Alex Mitchell and Ernesto Mollica as its Chief Financial Officer and Chief Operating Officer during Q3FY21. The stock of PG1 is trading below its average 52-weeks' levels of $0.052-$0.115. The stock of PG1 gave a positive return of ~13.46% in the past one weak and a negative return of ~26.24% in the past one year. On a TTM basis, the stock of PG1 is trading at a P/B multiple of 2.5x, lower than the industry median (Professional & Commercial Services) of 3.1x. Considering the current trading levels and valuation on a TTM basis, the strategic expansion, decent cash balance, strong demand and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.059, down by ~1.667%, as on 10 June 2021.

PG1 Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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