Stocks’ Details

Argosy Minerals Limited

Plans to Increase the JORC Indicated MRE: Argosy Minerals Limited (ASX: AGY) is involved in the exploration of the Tonopah Lithium project (100%) in Nevada, the USA, and the development of the Rincon Lithium Project (77.5%) in Salta Province, Argentina. As of 1 March 2021, the market capitalisation of the company stood at ~$137.52 million. The company recently announced that it has commenced preparation works to conduct a drilling program to expand the current JORC mineral resource estimate (MRE) for the Rincon Lithium Project in Argentina. An independent JORC Code (2012) compliant Exploration Target estimate prepared for the project exhibited 262k-479k tonnes of lithium carbonate (Li2CO3) deposits, underlying the current JORC Indicated Mineral Resource estimate (2018). The company recently announced a development plan schedule to construct its modular 2k tpa Li2CO3 plant. The company’s outlined program targets the first commercial production of >99.5% battery quality Li2CO3 from late Q2FY22.

Share Placement to Raise $30 Million: On 16 February 2021, AGY announced the issuance of 230.76 million fully paid common shares at $0.13 to institutional investors to raise a total of around $30 million. The proceeds will be used to for the construction and production of battery quality lithium carbonate product from the 2,000tpa modular scale operation at Rincon and on-going cash-flow generation.

December 2020 (Q4FY20) Result Highlights: During Q4FY20, AGY executed a spot sales contract with Y. N Chemical Co. Ltd (“YNCC”) for the sale of 20 metric tonnes of Li2CO3 (high purity battery quality). The product cargo is delivered from AGY’s industrial-scale modular plant and is currently being shipped to the customer. With the Department of Mining support, the company has submitted certain sections of the EIA (environmental impact assessment) report to start their review process. It is working towards the completion and submission of the EIA. During Q4FY20, AGY was admitted to the European Raw Materials Alliance (ERMA) as a primary raw material partner. The company witnessed improvement in the lithium market conditions during Q2FY21. AGY holds a cash reserve of ~$2.9 million as of 31 December 2020 and intends to maintain prudent financial management. It incurred ~360k of development works expenditure while there was no exploration and evaluation expenditure incurred during Q4FY20.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Key Risks: The company has already faced delays in its project operations in Argentina and the US due to the governments’ pandemic restrictions. It is exposed to the risk of raising adequate and timely finance for its two key projects. It is yet to undertake drilling, hence exposed to unfavourable drilling and testing outcomes and the results’ interpretation.

Outlook: Given an anticipated sales growth of EV in the next ten years and a forecast of the shortfall in the lithium supply, AGY intends to fast-track the construction of its processing plant. For the March 2021 quarter, AGY aims to focus on the progress toward the construction of its ~2ktpa Li2CO3 processing plant and related development work.

Stock Recommendation: The stock of AGY gave a positive return of 120% in the past six months and a positive return of 86.44% in the past one year. The stock is currently trading below the 52-weeks’ average price level of $0.026-$0.215. The stock of AGY has a support level of ~$0.09 and a resistance level of ~$0.131. On a TTM basis, the stock is trading at a price to book value multiple of ~5.9x higher than the industry (Metals & Mining) median of ~3x, thus seems overvalued. Considering the significant returns in the past 6 months and one year, valuation on a TTM basis, low debt levels of AGY, and news of placement of $30 million to fund 2k tpa production, we believe that most of the positives have been discounted at the current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.110 on 4^th March 2021.

VIP Gloves Limited

Sale & Leaseback Agreement Revoked: VIP Gloves Limited (ASX: VIP) is a manufacturer and supplier of nitrile gloves to OEMs. It operates production through its wholly-owned subsidiaries -VIP Glove Sdn Bhd (“VIP Glove”) and KLE Products Sdn Bhd (“KLE Products”) in Malaysia.  On 18 February 2021, VIP announced the revocation of the Sale & Purchase agreement (SPA) signed between its subsidiaries & DC Glove Sdn Bhd and their subsequent Leaseback. The decision to revoke has been taken due to the Movement Control Orders in Malaysia and Hong Kong’s lockdown due to COVID-19. The companies have signed a Deed of Revocation terminating the agreement with immediate effect from 17 February 2021. VIP now wholly owns the assets (land and buildings) and will use them for the glove line expansion programme. VIP will repay the sale proceeds received to date from its internal funds and pay an interim dividend (unfranked) of $0.18 per share on 31 March 2021, as announced. As of 31 December 2020, VIP confirmed maintaining a healthy balance sheet position and a low gearing ratio.

A Look at the 1HFY21 Results: VIP recorded revenue growth of 298.9% YoY to $20.98 million from the sale of gloves during 1HFY21 on a pcp basis. This revenue growth was due to the increase in demand for its gloves since the pandemic outbreak, rise in the average selling prices (ASP) and increased production capacity (by two newlines). The net profit for 1HFY21 grew to $2.25 million, up by 326.3% YoY in 1HFY21 on 1HFY20.  During 1HFY21, VIP repaid more than $1.2 million of interest-bearing debt. VIP held a cash balance of $1.41 million as of 31 December 2020. The customers’ receipts grew almost three times for 1HFY21, and net cash flows from the operating activities turned positive amounting to $1.82 million in 1HFY21.

Financial Highlights, 1HFY21 (Source: Company Reports)

Key Risks: The company faces the risk of government-mandated COVID-19 restrictions on the people’s movement (including labour) and transport. It is exposed to the fluctuations in the demand and average realised prices of gloves. As VIP grows and expands its manufacturing scale, it runs the risk of costs overrun, capacity utilisation and optimisation.

Outlook: The company has started the installation work for four more production lines to achieve higher production volumes in FY21. VIP has announced an inaugural dividend payment of $0.18 cents per share to be paid on 31 March 2021.

Stock Recommendation: The stock of VIP gave a positive return of 23.88% in the past three months and a positive return of 43.33% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $0.029. The VIP stock has a support level of ~$0.04 and a resistance level of ~$0.067. Considering the current trading levels, decent results of 1HFY21, growth in top-line and bottom-line, inaugural interim dividend payment, increase in cash receipts for 1H21, and associated risks of the pandemic, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.052, up by 1.960% on 4^th March 2021.

Wellness and Beauty Solutions Limited

Director’s Resignation & Appointment: Wellness and Beauty Solutions Limited (ASX: WNB) sells a mix of owned and licensed beauty, wellness, and lifestyle brands through its wholly-owned subsidiaries-The Giving Brands Company Pty Limited (GBCo) and True Solutions (TSA) Pty Limited. On 19 February 2021, the company announced the appointment of Mr Michael McCreadie as the Director and Interim Chairman of WNB from the said date. Simultaneously, Mr Julian Glynn resigned as the Director of the Group effectively. The company’s shares have been placed into suspension from quotation on 1 February 2021 due to the non-submission of its December 2020 Quarterly Report and Cashflows Report. WNB has informed investors of its ongoing talks with the relevant parties for a funding arrangement to meet working capital needs. It will update the market once a proposal is concluded. The company has updated that it is in the final stages of meeting all pre-requisites to sell its Immersion Clinical Spa network.

Consolidation of Shares of WNB: On 7 December 2020, WNB announced the completion of the consolidation of its issued shares and unlisted options on a 20:1 basis approved by the shareholders at the November 2020 AGM. WNB now holds 67.40 million shares post-consolidation. It also has 1.81 million unquoted convertible notes on the issue. WNB has notified shareholders regarding their new holdings through despatch of holding statements.

Added Exclusive Contracts & Brands to WNB’s Portfolio: On 7 December 2020, WNB announced the appointment of its subsidiary TSA as the sole Australian distributor for SPARITUAL, the US luxury spa range. SPARITUAL products will be distributed in the market from January 2021 end. In November 2020, TSA became the exclusive Australian distributor for the anti-aging products Forlle’d for the Japanese firm- Nanocosmetech Inc. TSA also entered an exclusive contract with NATURECOS.COS, Limited Liability Corporation for the distribution of French brand - Couleur Caramel for minimum of three years.

Q1FY21 Result Highlights: The company’s subsidiaries faced a significant impact of the retail restrictions imposed due to COVID-19, especially in Melbourne for the full quarter. WNB took measures to ready the business for scale and improvement in the cost base. Despite the challenging trading environment, the TSA division generated a net operating cash flow of $11K during Q1FY21. It plans to continue widening of its portfolio in preparation of business recovery. GBCo was impacted by the depressed retail environment. In August 2020, WNB declared the acquisition of the cosmeceutical range of Organic Nation. During Q1FY21, WNB entered a binding contract to dispose of the Immersion Clinical Spa Network to Aesthetica Group Limited, which is expected to reduce WNB’s cost base. It will receive $1.1 million of cash ($550K upon completion of the sale and $550K slated in July 2021). WNB collected cash receipts of $1.693 million, down 11.7% QoQ during Q1FY21 from GBCo and TSA business segments.

Cash Flows from Operating Activities, Q1FY21 (Source: Company Reports)

Key Risks: The company faces the risk of seeking adequate and timely funds for its working capital needs. During FY20, it was exposed to a depressed retail environment and closure of its beauty businesses due to COVID-19 restrictions in Victoria.  

Outlook: WNB anticipates Organic Nation to contribute~$250k in FY21 and may subsequently contribute ~$1 million in annualised revenue in the years. GBCo has launched Novalent Shield+ in Australia and plans to expand into the New Zealand market at the earliest.

Stock Recommendation: On 1^st February 2021, WNB’s securities were suspended from ASX. The shares of WNB will be held in suspension until the lodgement of its December Quarterly Reports on ASX and any other announcements made from WNB. The stock was last traded at $0.068.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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