Decmil Group Limited

DCG Details

Completion of Regulatory Testing:  Decmil Group Limited (ASX: DCG) mainly provides services such as designing, engineering, construction and maintenance to the infrastructure, resources, energy, and construction sectors in Australia. As announced on 8 December 2021, the Regulatory Testing of Sunraysia Solar Farm has been successfully finished. DCG is well progressed with the required performance testing in order to attain substantial completion.

Secured New Contracts: Recently, the company won two infrastructure contracts of ~$40 million, which comprised of ~$32 million with Main Roads Western Australia and ~$8 million with Queensland Department of Transport and Main Roads.

FY21 Financial and Operational Highlights:

• DCG posted a fall in normalised revenue to $313 million n FY21 against $451.3 million in FY20. The decline was due to delays and shifts of numerous contracts caused by COVID-19.
• The company recorded a normalised EBITDA profit of $7.6 million against an EBITDA loss of $42.3 million in FY20, owing to an improved normalised gross margin of 10.8% vs -0.2% in FY20.

Revenue & EBITDA (Source: Analysis by Kalkine Group)

Key Risk:

• Funding and Liquidity Risk: DCG’s business model requires decent funding in order to finish its contract in an effective manner. This may lead the business to a more debt position moving forward.
• Contract Pricing Risk: The company’s operational and financial performance could be impacted by the changes in the pricing of the ongoing contract

Outlook:

• At the end of FY21, the company had an order book of ~$570 million contracted and preferred, which include ~$400 million work in hand, contracted and preferred for FY22.
• For FY22, the company is expecting revenue of ~$500 million and anticipates maintaining a gross margin of 8-9%.

Stock Recommendation: The stock of DCG is trading near to its 52-week low level of $0.310, offering a decent opportunity for accumulation. The stock has been corrected by ~3.07% and ~12.49% in the past one and three months, respectively. On a TTM basis, DCG has an EV/Sales multiple of 0.3x as compared to the industry average (Construction & Engineering) of 9.4x. Thus, it can be said that the stock is undervalued at the current trading levels. Considering valuation on a TTM basis, successful regulatory testing, decent liquidity position, improving earnings, optimistic outlook, current trading level and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.315, as on 04 January 2022, 11:55 AM (GMT+10), Sydney, Eastern Australia.

DCG Daily Technical Chart, Data Source: REFINITIV  

Altech Chemicals Limited

ATC Details

Recent Business Update: Altech Chemicals Limited (ASX: ATC) is engaged in establishing a research and development laboratory in Australia as a dedicated facility for the alumina coating of graphite and silicon particles. As announced on 29 December 2021, ATC and Altech Industries Germany GmbH (AIG) executed a Memorandum of Understanding (MoUs) with two European-based companies, namely SGL Group and Ferroglobe, to supply lithium-ion battery grade anode materials.

Q1FY22 Activity Update

• Research & Development Work: The R&D laboratory is established in Western Australia, holding the potential to support lithium-ion battery chargeability, performance, life, and safety.
• Listed Green Bonds: The listed green bonds have targeted an offer of ~US$144 million. Pre-marketing of the bonds has already commenced.
• Halloysite Discovered: Halloysite discovery is made at Kerrigan kaolin deposit, which can replace carbon nanotubes in high-tech applications.
• Cash Position: Net cash outflow from operating activities stood at $1.075 million, and cash balance as of 30 September 2021 stood at $3.855 million.

Financial Snapshot FY21, Analysis by Kalkine Group

Key Risks and Challenges: Considering the industry requirements, the company is exposed to high regulatory hurdles. Given international operations of the battery industry, ATC may encounter supply chain constraints. The labour shortage has become a key issue for the metals & mining industry.

Outlook: ATC is expected to benefit from the MoUs signed with SGL Group and Ferroglobe to maintain operational uniformity. The global market, mainly the US, expects to seek a substantial demand surge, backed by a rapidly growing lithium-ion battery and LED industries.

Stock Recommendation: The stock of ATC gave a positive return of ~101.49% in the past three months. The stock is currently trading higher than the 52-weeks’ average price level band of $0.037 - $0.150. The stock has a support and resistance level of $0.11 and $0.165, respectively. In addition, the stock is trading at a P/BV multiple of 1.9x as compared to the industry median (Metals & Mining) of 1.5x on a TTM basis. Thus, it can be said that the stock is overvalued at the current trading levels. Considering the valuation on a TTM basis, solid rally in the past months, current trading level, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.138 as on 04 January 2022, 2:45 PM (GMT+10), Sydney, Eastern Australia.

ATC Daily Technical Chart, Data Source: REFINITIV

NOTE: Altech Chemicals Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any recommendation concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

Note: The purple line reflects the RSI (14-day period)

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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