Slater & Gordon Limited

SGH Details

FY20 Result Highlights: Slater & Gordon Limited (ASX: SGH) is a legal services provider in Australia. SGH offers personal legal services, corporate and specialised litigation services, resolution of personal injury claims.

• Increase in Revenue Growth: The company posted a revenue growth of 14.16% YoY in FY21 to $202.34 million.
• Rise in NPAT: SGH reported an increase in NPAT to $14.47 million in FY21 from a loss of $1.18 million in FY20.
• Decline in Outstanding Debt: SGH decreased its secured outstanding debt and improved working capital by restructuring of the borrowing facilities. SGH held $89.2 million of total borrowings (exclusive of lease liabilities), down by $2.6 million from last year as of 30 June 2021.
• CFO Resigned: On 10 August 2021, SGH declared the resignation of Scott Butterworth, the CFO and the company is yet to announce the departure date.
• Cash & Cash Equivalents’ Balance: SGH held $20.69 million cash and cash equivalents as of 30 June 2021.

Total Revenue & Other Income & Net Income from FY20-FY21; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Challenge: The company faced lockdown restrictions in Victoria in FY21 and witnessed an impact on the client claims processing. SGH also experienced reduced activity in some parts of the legal process and lower settlement volumes due to the COVID-19 restrictions.
• Cost-Effective Funding: SGH faces the risk of seeking cost-effective finance and renewing the finance facility at improved terms.

Outlook:

• The continued imposition of government restrictions may affect SGH’s performance in FY22. The company already witnessed specific impacts on its cash flows and fees billed.
• The Board will monitor the COVID-19 situation closely, take appropriate actions, and advise by governments and health authorities.

Stock Recommendation: The stock of SGH gave a positive return of 27.85% in the past month and a positive return of 26.95% in the past three months. The stock is currently trading closer to its 52-weeks’ average price level band of $0.655 - $1.145. On a TTM basis, the stock of SGH is trading at a price to cash flow value multiple of 5.8x higher than the industry (Professional & Commercial Services) median of 3.3x, thus seems overvalued. Considering the current trading levels, decent financial performance in FY21, growth in WIP (work-in-progress), valuation on a TTM basis, and associated risks of COVID-19, reduction in fees, regulations, we give a ‘Sell’ rating on the stock at the current market price of $0.900 as of 30 August 2021, 10:50 PM, (GMT+10), Sydney, Eastern Australia.

SGH Daily Technical Chart, Data Source: REFINITIV  

Vmoto Limited

VMT Details

Q2FY21 Performance Highlights: Vmoto Limited (ASX: VMT) manufactures and sells electric and petrol two-wheelers in Australia and China. On 27 July 2021, VMT provided the following business update for Q2FY21:

• Increase in Unit Sales: VMT reported sales of 7,854 units in 2QFY21, up by 23% YoY with 95% sales in the overseas markets and 5% in China.
• Growth in Overseas Sales: The company sold 7,503 units in the international markets in Q2FY21, up 26% on 2QFY20.
• Positive Cash Flows: VMT has generated positive operating cash flows for 2QFY21 and Q1FY21.
• New Contract: During Q2FY21, VMT entered a marketing and sponsorship contract to supply scooters, showcase its brands at the FIM ENEL MotoE World Cup, an electric motorcycle racing event, during the 2021-2023 seasons.
• Renewed Agreements: In 2QFY21, VMT inked and renewed distribution contracts with overseas suppliers across Indonesia, Bolivia, Mauritius, Brazil, Cayman Islands, and others for the storage, distribution, and marketing of its B2C line of electric two-wheel vehicles.
• Liquidity Position: VMT held $16.5 million cash and had no bank debt on 30 June 2021.

Revenue & NPAT from FY16-FY20; (Analysis by Kalkine Group)

Key Risks:

• Supply Risk: Due to the shortage of semiconductors and chips, the company could face a supply-side constraint during the COVID-19, and still, the uncertainty prevails.
• COVID-19 Impact: The delayed distribution and economic slowdown have affected the company’s earnings due to the pandemic.

Outlook:

• The company has an international order book of 9,636 units as of 30 June 2021. VMT anticipates sales to grow with the repeat orders from existing clients and more orders from new customers in 2HFY21 and beyond.
• VMT is exploring avenues to partner with the top brands and firms in the mobility industry. The firm is in talks with several business groups to include electric two-wheel vehicles in their business portfolio. VMT is also trying to include some of the partner products into its vehicle and distribution network.

Stock Recommendation: The stock of VMT gave a negative return of 22.35% in the past three months and a negative return of 32.65% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.325 - $0.670. On a TTM basis, the stock of VMT is trading at a price to book value multiple of 1.3x lower than the industry (Automobiles & Auto Parts) median of 2.1x, thus seems undervalued. Considering the current trading levels, increase in international sales and unit sales in Q2FY21, strong liquidity position, positive cash flows, the decent outlook of increasing partnerships and portfolio, valuation on a TTM basis, and associated risk of the COVID-19 spread and supply risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.330, as on 30 August 2021, 11:14 PM, (GMT+10), Sydney, Eastern Australia.  

VMT 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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