Decmil Group Limited

DCG Details

Secured New Contracts: Decmil Group Limited (ASX: DCG) provides services such as designing, engineering, construction and maintenance to the Infrastructure, Resources, Energy and Construction sectors throughout Australia. Recently, the company added two new contracts of $88.7 million and $28.2 million with Major Road Projects Victoria for Barwon Heads Road Upgrade – Work Package 1 and Roy Hill-Munjina Road alignment works, respectively.

• The company will begin execution on the Work Package 1 contract on an immediate basis and anticipates finalising in 2023.
• With respect to Roy Hill-Munjina Road alignment works, the company is likely to commence work in October 2021 and expects to finish the work by mid of 2022.

FY21 Financial Summary:

• Fall in Revenue: For the year ended 30^th June 2021, the company recorded revenue amounting to $303.7 million as compared to $451.3 million in FY20, due to delays and shift of numerous contracts caused by COVID-19.
• Turnaround in EBITDA: DCG witnessed normalised EBITDA profit of $7.6 million in the fiscal year against EBITDA loss of $42.3 million in FY20, supported by an improved normalised gross margin of 10.8% vs -0.2% in FY20.
• Improvement in Losses: At the end of FY21, DCG reported a statutory after-tax loss of $11.5 million against the loss of $140.4 million in FY20. This includes the write-down of a contract position of $9.7 million from a legacy dispute.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risk:

• Uncertainties by COVID-19: The company witnessed challenges from COVID-19, which caused delays in the contract and impacted DCG’s topline.
• Funding Issues: DCG’s business model requires decent funding in order to finish its contract in an effective manner. This may lead the business in a more debt position moving forward.
• Selection Risk: The company’s business risk also includes the choice of projects, which can deliver acceptable returns for commensurate risk.

Outlook:

• The company closed FY21 with an order book of ~$570 million contracted and preferred, which include ~$400 million work in hand, contracted and preferred for FY22.
• For FY22, DCG is expecting revenue of ~$500 million and also anticipates maintaining a gross margin of 8-9% for the upcoming year and beyond.

Stock Recommendation: During the year, the company recorded net cash flow from operations of $2.7 million before repayment to surety bond providers of $24 million. This repayment led the business to a net debt position of $8.1 million at the end of FY21 against a net cash position of $18.7 million at the end of FY20. On a TTM basis, DCG has an EV/Sales multiple of 0.3x as compared to the industry average (Construction & Engineering) of 4.6x, thus seems undervalued. The stock of DCG gave a negative return of ~23.65% in the past three month. The stock of DCG is trading near to its 52-week low of $0.345, offering a decent opportunity for accumulation. Considering the turnaround in EBITDA position, improving bottom line, decent order book and outlook, valuations on TTM basis, 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 $0.345 as on 23 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

DCG Daily Technical Chart, Data Source: REFINITIV  

Osteopore Limited

OSX Details

Signing of Agreement: Osteopore Limited (ASX: OSX) is an Australia and Singapore based medical technology company, which is engaged in the production of 3D printed bioresorbable implants. Recently, the company has released 39,230,438 fully paid ordinary shares and 9,700,000 unlisted options expiring 30 June 2022 from escrow.

• In the month of August 2021, the company inked an agreement to conduct two ground-breaking human clinical trials with a renowned Queensland plastic and reconstructive surgeon.
• The company added that these clinical trials would require in-situ evaluation as well as authorization of two of its patented PCL-TCP 3D-printed bone scaffold systems.

1HFY21 Financial Summary:

• Falling Revenue: During the said period, OSX recorded revenue amounting to $619,340 against $672,774 in 1HFY20, despite difficult global macroeconomic conditions caused by COVID-19 restrictions, mainly in Asian markets.
• Increasing Presence: The company also increased its footprints in EU markets, including Germany, the Netherlands, and the UK.
• Rising Losses: OSX reported a net loss after tax of $1,357,767 as compared to $670,861 in 1H FY20.
• Net Asset Position of OSX: As on 30 June 2021, OSX had a net asset position of $7,605,279 as compared to $8,996,345 as on 31 December 2020.

Cash Balance (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk: The company is exposed to a more complex regulatory environment as it has expanded its presence in Asia, USA, UAE, and UK markets.
• Forex Risk: Adverse movement in foreign currency may impact the company’s financial health.

Outlook:

• The future growth opportunities of the company revolve around numerous early-stage research initiatives with high-quality institutions.
• The company is aiming to increase revenue growth via leverage cranial and maxillofacial products with regulatory approval in various markets such as Asia, Australia & NZ, USA, Germany, and Scandinavia.
• OSX is also targeting diversification through leveraging dental product regulatory approval in Singapore to drive sales in Asia.

Stock Recommendation: The company closed 1HFY21 with a cash balance of $7,262,478 against $9,027,016 as on 31 December 2020. On a TTM basis, OSX has an EV/Sales multiple of 11.3x as compared to the industry median (Healthcare) of 12.9x, thus seems undervalued. The stock of OSX gave a negative return of ~9.09% in the past one month. The stock of OSX is trading near to its 52-week low of $0.290, offering decent opportunity for accumulation. Considering the current trading level, increasing presence in EU markets, decent outlook, valuations on a TTM basis, key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.300 as on 23 September 2021.

OSX 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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