Pearl Global Limited

PG1 Details

Key Business Updates: 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.

Exercise of Call Option: As announced on 22 October 2021, PG1 intends to execute the Call Option on the 100% acquisition of Keshi Technologies Pty Ltd via an issue of 11,250,000 shares in PG1 at a deemed price of 10 cents/share.

Share Purchase Plan (SPP): On 4 October 2021, PG1 advised that the SPP, announced on 2 August 2021, raised circa $619,000. The SPP was offered with the opportunity to raise up to $750,000 at 3.50 cents/share.

FY21 Financial Performance

Top-line Update: Revenues arose explicitly from fees on collection of waste tyres and sale of high grade valuable raw materials. Revenues inclined to $2.16 million in FY21 relative to $1.92 million in FY20.

Bottom-Line: Operating losses before tax stood at $7.48 million, down from $9.98 million registered in FY20. The reported improvements were largely attributed to $5.09 million impairment expenses in witnessed in FY20.

Cash Flow Position: During FY21, PG1 almost doubled its cash outflow from operating activities to $6.94 million relative to $3.53 million in FY20, primarily attributed to significant increase in payments to suppliers and employees, reduced receipt of government grants and incentives, and increased interest burden.

Financial Position: PG1 reported $2.96 million in cash and cash equivalents as on 30 June 2021, relative to $1.89 million in prior corresponding period. The incline in cash balance was primarily attributed to $9.63 million proceeds from share issues and $1.75 million proceeds from borrowings.

Top-Line and Cash Flow Standing; Analysis by Kalkine Group

Key Risks

Risk of machine downtime to deliver low production margins may sustain. Extensive investment activities are required to upscale manufacturing technology to improve margins; hence, potential leakage in net cash flows is expected. Gradual retrenchment of government support may contract operating cash flows.

Outlook

The acquisition of Keshi will enable PG1 to assume ownership of the underlying intellectual property and patents for the clean conversion of end-of-life tyres. The acquisition will also remove PG1’s obligation on ongoing royalty payments. During FY21, PG1 developed sale fuel and recovered carbon black into Australian Asphalt Industry.

Stock Recommendation

The stock of PG1 gave a negative return of ~65.714% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.027 - $0.110. Considering the ownership of intellectual property and patents from acquisition, sales development strategies, removal of royalty payments, technical levels as mentioned below, current trading levels, and key risks associated to the business, we give a “Speculative Buy” recommendation on the stock at the market price of $0.036, as of 22 October 2021.

Technical Overview

PG1's prices has broken the downward sloping trendline on the daily chart and starts trading in a rising channel with closing above 50-day SMA. Prices are still sustaining above the resistance turned support level AUD 0.032 and recently started to move upward, indicating an upside direction hereon. On the weekly chart, the leading indicator RSI (14-period) is trading in positive territory at ~37.02 levels. The CMP is sustaining above the trend following indicators 21-period SMA and 50-period SMA; further supporting an uptrend.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks of COVID-19 impact, operational downtime risk, retrenchment of relief policies and soaring interest burden.

PG1 Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart depicts RSI (14-period). The blue and green color lines show 21-Period SMA and 50-Period SMA, respectively.

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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