HRL Holdings Ltd

HRL Details

Key Findings from FY21 Results: HRL Holdings Ltd (ASX: HRL) provides environmental services, hazardous material, waste management, and ongoing compliance solutions utilising technological platforms.

• Rise in Revenues: In FY21, HRL reported revenues of $34.6 million, up 5.5% year over year, as the company witnessed robust revenue growth across the food laboratory division.
• Higher Underlying NPAT: The company reported an underlying profit after tax of $3.2 million, depicting an increase of 27.7% year over year, owing to higher earnings from Analytica and HAZMAT division.
• Increase in EBITDA: Underlying EBITDA for the period increased by 11% year over year and came in at $7.7 million, owing to decent profitability across all business units.
• Acquisition Synergies: On 1 March 2021, the company acquired Water Testing HB (2016) Limited (WTHB). The buyout will expand HRL’s geographic coverage in New Zealand to the Hawkes Bay region on the east coast.
• Balance Sheet Position: The company exited FY21 with a net debt position of $0.4 million and undrawn facilities of $7.8 million. Net debt at the end of FY20 stood at $1.1 million. Cash flow from operations in FY21 came in at $5.5 million.
  

Top-line Highlights (Analysis by Kalkine Group)

Key Risks:

• Forex Headwinds: Any adverse movement in foreign exchange price may impact the financial performance of the company.
• Weather-Related Risk: The company’s Geotechnical division are exposed to risks associated with weather-related events like heavy rainfall.

Outlook:

• The company intends to invest higher in both CAPEX (laboratory equipment and software) and OPEX (people and processes). Capital expenditure for FY22 is expected to be ~$4 million.
• The company remains on track to help its joint venture partners as they both move into a new phase. It also seeks out new acquisition opportunities in the laboratory segment.
• Trading for CAIQTest (Pacific) Limited during FY21 continued to show robust strength, with revenue growing 36% on pcp. The trend is expected to continue in both revenue and profits in the years ahead.

Stock Recommendation: The stock of HRL gave a negative return of ~20.69% in the past six months. The stock has a 52-week high and low level of $0.145 and $0.098, respectively. On a TTM basis, the stock of HRL is trading at an EV/Sales multiple of 1.7x lower than the industry median of 3.1x, thus seems under-valued at current levels. Considering the current trading levels, increase in the top-line, rise in underlying profits, acquisition synergies, decent outlook, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.115 as on 2 August 2021.

HRL Daily Technical Chart, Data Source: REFINITIV 

BluGlass Limited 

BLG Details

4QFY21 Business Highlights: BluGlass Limited (ASX: BLG) is engaged in the R&D activities of Group III nitrides to build new processes and equipment for manufacturing high-efficiency devices, such as light-emitting diodes (LEDs) and solar cells.

• In 4QFY21, the company made progress to develop its 405nm, 420nm and 450nm direct-to-market commercial laser diode products.
• The company is working with various vendors and expert fabrication specialists to resolve reliability issues for its laser diodes.
• During the June quarter, the company improved its laser diode designs, utilising its proprietary remote plasma chemical vapour deposition (RPCVD). Further, BLG’s tunnel junction technologies are also progressing well via the manufacturing supply chain.
• The company has successfully raised a total of $8.42 million through an oversubscribed Entitlement Offer and two separate placements. The raised funds will aid BLG to accelerate the delivery of its direct-to-market gallium nitride laser diode products. Proceeds will also be utilised for investment in sales, marketing, and distribution channels for its laser diode products, along with the development of product and working capital.
• At the end of the quarter, the cash balance stood at $4.176 million.

Cash Highlights (Analysis by Kalkine Group)

Managerial Changes:

• In June 2021, the company stated that Giles Bourne a Managing Director and CEO of the company, has stepped down from his post after being connected to the company for more than 13 years.
• BluGlass Chair James Walker has accepted the role of Executive Chair.
• During the quarter, the company appointed Jean-Michel Pelaprat as a Non-Executive Director of the company.

Key Risks: The company is exposed to risks related to supply chain disruptions arising out of natural calamities or COVID-19 virus outbreak. Also, the company is exposed to financial risk, which includes credit risk, and interest rate risk.

Outlook: 

• The company continues to pursue improvement in its laser diodes and products’ reliability, which are currently in the advance stage of manufacturing supply chain.
• The company is expecting to receive an R&D rebate of $3 million in September 2021.

Stock Recommendation: Recently, the company announced that regarding Regal Funds Management Pty Ltd, a substantial holder of the company, has decreased it voting power from 7.18% to 5.63%. The stock of BLG gave a negative return of ~55.76% in the last three months. The stock is currently trading below the average 52-weeks’ price level range of ~$0.028-~$0.128. On a TTM basis, the stock of BLG is trading at an EV/Sales multiple of 7.1x lower than the industry median of 14.2x, thus seems under-valued. Hence, considering the aforesaid facts, raising funds to invest in R&D of its product, current trading levels, valuation on TTM basis, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.029, up by ~3.571%, as on August 2, 2021.

BLG 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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