Silex Systems Limited

SLX Details

GLE Structure Approvals by CFIUS: Silex Systems Limited (ASX: SLX) engages in research, development, and commercialisation of SILEX Uranium Enrichment Project along-with US-based Global Laser Enrichment (GLE), a Zero-Spin Silicon (ZS-Si) project with UNSW in Sydney & Silicon Quantum Computing (SQC) and potential deployment of cREO technology in 5G high-frequency filter applications through IQE. On 19^th January 2021, SLX announced reaching another record stage of developing a commercially viable process to produce high purity ZS-Si by deploying a variant of the SILEX laser isotope separation (LIS) technology. On 18^th January 2021, SLX updated that it has received all necessary approvals for GLE restructure from the US Department of the Treasury - Committee on Foreign Investment in the United States (CFIUS). Henceforth, SLX will acquire 51% ownership in GLE and Cameco will hold 49%. The company had recently received the grant of a stand-alone Facility Clearance from the US Nuclear Regulatory Commission (NRC).

FY20 Highlights: In a major move to restructure GLE, the company entered a binding contract with Cameco in December 2019. During the year, the company launched a 3-year ZS-Si project in partnership with UNSW, Sydney, and Silicon Quantum Computing (SQC) to produce silicon with SILEX technology. SQC has also acquired a small equity interest in SLX in January 2020. During Q420, SLX sold its ‘cREO™’ technology, developed by its subsidiary (Translucent Inc) to IQE Plc and received US$400k as the minimum royalty payment. SLX recorded revenue of $1.001 million in FY20 from the sale of cREO™ technology and interest income. It incurred a higher loss of $7.8 million for the year, compared to the loss of $5.13 million, due to a $2.6 million rise in development expenditure.

FY20 Financial Highlights (Source: Company Reports)

Outlook:  The company expects to complete (ZS-Si) silicon enrichment project by the close of CY22, well-aided by a grant of $3 million. It has already signed its first offtake agreement of $1.8 million from the product purchase contract with SQC. The company looks forward to working on the restructure of GLE. It has set clear commercialisation milestones to accomplish both at GLE in North Carolina and in Sydney. It also plans to move forward on developing and commercialising cREO™ program through IQE.

Stock Recommendation: The stock of SLX gave a positive return of 159.64% in the past three months and a positive return of 102.73% in the past six months. The stock is currently inclined towards its 52-weeks’ high-level price of $1.70. On a technical analysis front, the stock of SLX has a support level of ~$1.33 and a resistance level of ~$1.551. On a TTM basis, the stock of SLX is trading at a price to book multiple of 10.1x, higher than the industry (Renewable Energy) median of ~5.8x. Considering the aforesaid facts, stock’s decent returns in the past few months, and valuation on TTM basis, we believe that most of the positives are factored in at current trading level. Hence, we suggest investors to wait for better entry level and give an ‘Expensive’ rating on the stock at the current market price of $1.480, up by 1.718% on 19^th January 2021.

SLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Youfoodz Holdings Limited

YFZ Details

Issue of Shares for Working Capital: Youfoodz Holdings Limited (ASX: YFZ) is engaged in the production and distribution of fresh instant meals, protein-based snacks, juices straight to households and to stockists in Australia. The company was recently added to ASX for listing post raising a $70 million IPO and commenced official quotation of YFZ’s ordinary shares on 8^th December 2020.  As on 19^th January 2021, the market capitalisation of the company stood at ~$127.71 million. On 30^th December 2020, the company announced the issue of 68k fully paid shares and 53k unlisted options (exercisable at $1.50 on or before 30 November 2020) to raise more working capital funds on or after 31^st October 2021. These shares have been issued as a gift offer to few employees under the Equity Incentive Plan (EIP), and no payment has been made for these shares.

FY20 Result Highlights: The company recorded a fall in revenue by 18% to $127.32 million in FY20 from $155.26 million in FY19. This was due to the fall in income from home deliveries and from retail/wholesale due to the impact of COVID-19 in March 2020. Its cost of sales was lower during FY20 resulting in higher gross profit of $37.32 million. YFZ’s net loss after tax reduced to $6.4 million in FY20 from $34.70 million in FY19. The group raised $24.6 million new equity in FY20. The cash outgoings from operations were $19.14 million and, cash & cash equivalents stood at $852k as on 30 June 2020.

Income Statement-FY20 (Source: Company Reports)

Outlook: Looking ahead, the company is focused on growing it revenue organically by capturing a greater market share in both the B2C and B2B segments of the ready-made meal industry. Due to a shift in consumer preferences away from traditional home-cooking and the increased accessibility of healthy, convenient, and high-quality food products, the company expects strong underlying growth in the uptake of fresh ready-made meals to continue in the medium-term. From FY2016 to FY2022F, the company expects sales of chilled ready-made meals in Australian and New Zealand to increase at a compound annual growth rate (CAGR) of 11.3%. For FY21, the company expects its net revenue to be around $149.9 million.

Valuation Methodology: Price to Sales Multiple Based Relative Valuation (Illustrative)

P/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of YFZ gave a negative return of 2.06% in the past one month. The stock is currently inclined towards its 52-weeks’ low price of $0.945. The stock of YFZ has a support level of ~$0.946 and a resistance level of ~$0.99. We have valued the stock using the price to sales multiple based illustrative relative valuation method and have arrived at a target price with an upside on low single-digit (% terms). For the purpose, we have taken peers like Food Revolution Group Ltd (ASX: FOD), Graincorp Ltd (ASX: GNC), Tassal Group Ltd (ASX: TGR), etc. Considering the low trading volume, market volatility, and valuation, we suggest investors to wait for better entry levels and catalysts that can drive the stock further. Thus, we give an ‘Avoid’ rating on the stock at the current market price of $0.950 on 19^th January 2021.

YFZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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