Stocks’ Details 

Ridley Corporation Limited

Market Update: Ridley Corporation Limited (ASX: RIC) is engaged in the production of animal nutrition solutions, including stock feed milling and the marketing and provision of rural products and services. As on 24 August 2020, the market capitalization of the company stood at ~$222.2 million. Recently, the company provided a market update pertaining to the non-cash impairment of its NovacqTM Cash Generating Unit (CGU). Delays in the development and installation of processing technology have negatively impacted the production and restricted sales volumes. As a result of this, along with general economic uncertainty due to COVID-19 pandemic, the company will raise a non-cash impairment of $21.6 million in its NovacqTM CGU in FY20. 

RIC formally Launches New Wellsford Feedmill: On August 3, 2020, the company stated that it has officially opened the $47 million, state-of-the-art facility situated at Wellsford, East Bendigo. The new Wellsford Feedmil, which has a production capacity of 350,000 tonnes on an annual basis, will supply poultry and pig customers in the area of Central and Northern Victoria.

Interim Results: During 1H20, the company reported a solid operating performance with an EBITDA (ongoing operations) of $30.7 million, marginally up on corresponding prior-year period. RIC is modernising its assets and has secured control over its Thailand operations for expansion.

1H20 Financial and Operational Highlights (Source: Company Reports)

Growth Opportunities: The company is commercializing its pipeline of innovation opportunities. RIC has significant opportunities to simplify the business, install automation, leverage its raw material and consumable procurement, and to rationalize the supply chain. The overall outlook for the business is positive, with another strong year expected for the Ruminant business driven by high milk prices.

Key Risks: The company might face significant operational risks. Cyclical fluctuations impacting the demand for animal nutrition products may adversely impact the diversified portfolio. Performance of RIC may also be impacted by the influence of the domestic grain harvest.

Management Changes: On 24 August 2020, the company appointed Mr Mick McMahon and Mr Rhys Jones to the Board, effective from 27 August 2020. 

Stock Recommendation: As per ASX, the stock of RIC is trading close to its 52-week low of $0.655, offering a decent opportunity for accumulation. The stock of the company went down 5.41% in the past one-month period. On the technical analysis front, the stock has a support level of ~0.674 and resistance level of ~0.762. The company expects the poultry volume to improve in the coming years as the industry reverts to its traditional bird lifecycle. The stock of RIC is trading at an EV/Sales multiple of 0.4x as compared to the industry median of 1.6x on TTM basis. Notably, the company is set to report its FY20 results on 26 August 2020. Considering the attractive trading levels, along with a decent growth strategy from the long-term perspective, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.695, down by 0.714% on 24 August 2020.

Hitech Group Australia Limited 

Revenues up Year Over Year: Hitech Group Australia Limited (ASX: HIT) is engaged in supplying information technology & telecommunications recruitment services for permanent and contract staff.

FY20 Key Financial Highlight: During the period, the company reported operating revenues of $33.3 million, up 10% as compared to the previous corresponding period. Gross Profit came in at $6.1 million, an increase of 6% on pcp. The company reported NPAT of $3.3 million, an increase of 15% over pcp. EBITDA increased by 8% and came in at $4.3 million. The company witnessed 6th consecutive record year of revenue, EBITDA and NPAT versus pcp. The company exited the quarter with a cash balance of $7.6 million, as compared to $5.9 million reported at the end of FY19. The company’s FY20 results highlight HIT’s continuous efforts to capitalise on strong demand for ICT talent and services owing to the robust demand for digital transformation with remote work becoming the new norm. The company also declared a fully franked dividend of 4 cents per share for FY20.

Key Financial Highlights (Source: Company Reports)

Outlook: The company remains well-equipped to capitalise on the consistent demand for ICT talent and services. HIT expects clients will continue to seek the best of breed quality talent and services to enable their ever-growing online services capabilities.

Key Risks: The company’s business is likely to be impacted by the results of the significant escalation measures taken by Governments to curb the impact of COVID-19 infection. The company is exposed to specific operational risks, and financial risk which includes market risk, liquidity risk, and credit risk.

Stock Recommendation: As per ASX, the stock of HIT is trading close to its 52-week high of $1.7. The stock of HIT has delivered a return of 16.42% within the last one month and a return of ~10% in the past three months period.  On the technical analysis front, the stock has a support level of ~1.52 and resistance level of ~1.71. The company stated that FY21 outlook will depend mainly on the current uncertain economic conditions along with supply and demand forces for ICT talent and services. The stock of HIT is trading at an EV/Sales multiple of 1.7as compared to the industry median of 1.6x on a TTM basis. Thus, considering the above factors, and current trading levels, we suggest investors to keep an eye on the business activities and thus, have a watch stance on the stock at the current market price of $1.60, up by 0.313% on 24 August 2020.

Six Sigma Metals Limited

Exploration Update:  Six Sigma Metals Limited (ASX: SI6) is an exploration company, which operates in Southern Africa, specifically targeting projects containing “battery or new world” metals. In a recent update, the company stated that it has raised $1,440,000 (before costs) pursuant to the company’s Share Purchase Plan (SPP) that ended on 14 August 2020. The SPP was considerably oversubscribed with demand being greater than 3.5 times as compared to the original SPP offering. In another update, the company informed the market on its exploration activities targeting additional nickel, copper, cobalt, PGE, and silver mineralisation in Botswana. The company’s Phase 1 program has been completed, while the Phase 2 program is scheduled to commence in the coming weeks.

Cash Flow Position: During the quarter ended 30 June 2020, the company reported a net operating cash outflow of $107k, which included payments for exploration & evaluation along with administration and corporate costs of $27K and $72K, respectively. The company closed the quarter with cash and cash equivalents of $909K. During the June quarter, the company was mainly focused on the planning and initiation of its two-phase field exploration program in Botswana. The company also aimed for potential acquisition opportunities. Additionally, the SI6 remained on track to monitor the BCL Limited liquidation process regarding the Si6’s influenced Botswanan assets.

Cash Flow Details (Source: Company Reports)

Key Risks: The company has witnessed delays due to the spike in COVID-19 cases in late July or early August. Consequently, the Government of Botswana enacted lockdown measures and travel restrictions. The company saw difficulties resulting from these restrictions in moving people and equipment across Botswana. Further, the company is exposed to a variety of risks, which may impact the performance of the company. These risks include customer risks, competitor risks, consumer demand, and foreign exchange rates.

Stock Details: During 1HFY20, the company’s other income increased from $1,522 reported in 1HFY19 to $2,455. In addition, loss after tax came in at $ 383,760, as compared to a loss of $923,780 in 1HFY19. The stock is currently in a trading halt as the company is expecting to release an announcement regarding a proposed material acquisition. The stock is likely to remain in a trading halt until the earlier of the commencement of normal trading on 25 August 2020 or when the announcement is released to the market. The stock last traded at $0.008 per share.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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