Fluence Corporation Limited 

FLC Details

Key Recent Updates: Fluence Corporation Limited (ASX: FLC) is involved in providing wastewater treatment and packaged water solutions. Its products include Product and Innovation Group (P&I).

• On 13^th December 2021, Mr Richard Cisterna has been appointed as Chief Strategy Officer (CSO) to have prime focus on North American Business.
• On 10^th December 2021, the company got an increase of US$10 million in their existing debt facility for its Upwell Water LLC, which will be further deployed to finance its recurring revenue projects and its working capital.
• A plant to treat wastewater (serving 46k people) of US$2.15 million worth order was won by FLC from its new volume partner – Yangzhou Yijian Group Co.

3QFY21 Highlights:s

• For its 3QFY21, its showed strong growth in revenue of ~46% Y-o-Y, owing to main contribution from Smart Products Solutions (SPS) of US$18.9 million.
• It closed its 3QFY21 with a cash balance of ~US$16.3 million. Notably operating cash outflow during the quarter stood at US$2.05 million, compared to an outflow of US$5.9 million reported in the year-ago period.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the following risks which might affect its sales and profitability:

• Stiff Competition: works in a competitive market, which might pose some operational risk.
• Foreign Exchange and Regulatory Risk: The company’s business is exposed to the fluctuations of currency and to the ever changing and complex regulatory amendments, which might affect its functionality.

Outlook: With surpassing of 300 MABR plants sold worldwide, it focusses on growing the revenue mix from Smart Products Solutions (SPS) from 54% in 2020 (excluding Ivory Coast) to 65% in future. It aims to sell its MABR to China and SE Asia, while Nirobox to Middle East and SE Asia. It expects to achieve underlying EBITDA positive for FY21, along with SPS sales of ~US$35-50 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

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: Over the last six months, the stock has provided a negative return of ~27.90% and is trading lower than the average 52-week price level band of AUD 0.150 and AUD 0.280. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the enhancement of debt in 3QFY21, negative ROE and decrease in gross margins, the company can trade at some discount to its peers. For the purpose of valuation, peers like Korvest Ltd (ASX: KOV), Amaero International Ltd (ASX: 3DA), Zicom Group Ltd (ASX: ZGL), and others have been considered. Considering the company’s quarter performance, forward looking market penetrating strategies, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of A$0.155, down by ~8.824% as on 13 December 2021.

FLC Daily Technical Chart, Data Source: REFINITIV

Decmil Group Limited  

DCG Details

Recent Updates: Decmil Group Limited (ASX: DCG) caters infrastructure, resources, energy, and construction sectors by providing services related to designing, engineering, construction, and maintenance engineering construction services.

• As per the 8 December 2021 announcement, it successfully completed its Sunraysia Solar Farm regulatory testing.
• It recently received new contracts totalling ~$40 million, including ~$32 million of Main Roads WA and ~$ 8 million with Queensland Dept. of Transport and Main Roads.

FY21 Highlights:

• As per its Full Year Presentation, the company’s normalised revenue is slowed down by ~31% Y-o-Y to $313.4 million, mainly due to reduction in orders booked in the inception of reporting period.
• Despite of reduction in level of activity, it generated positive EBITDA of $7.6 million with an increase in normalised gross margin of ~10.8% for FY21 on pcp basis.
• It closed its FY21 with a cash balance of ~$9.7 million versus ~$43.9 million in FY20.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the following risks:

• Contractual Guidelines: Having multiple contracts, DCG is exposed to risks related to non-abiding of the guidelines and contractual laws, failure to which could lead to penalties or legal suits.
• Regulatory Risk: The company’s performance and operations are dependent on the regulations released by the government bodies.
• COVID-19 and new variant Omicron: The business might get affected on operational levels if the fear and impact of Omicron Variants increases.
  

Outlook: Looking forward, DCG focusses on targeting blue-chip clients. So far, it has ~$445 million worth work to be delivered for FY22, out of which Albany Ring Road contract of ~$95 million seems to be on track.

Stock Recommendation: The stock of the company has been corrected by ~43.85% in the past nine months. Currently, the stock is trading below the average of its 52-week high and low levels of $0.310 and $0.675, respectively. On a TTM basis, the stock of DCG is trading at an EV/Sales multiple of 0.3x, lower than the industry average (Construction and Engineering) of 9.0x, thus seems under-valued. Considering the positive EBITDA and increase in normalised gross margin, new contracts, positive outlook, 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 closing market price of $0.320, down by ~1.539% as on December 13, 2021.

DCG Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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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