Emeco Holdings Limited

EHL Details

Quarterly Rebalance:  Emeco Holdings Limited (ASX: EHL) is an Australian company which offers open cut and underground mining equipments, maintenance and project support solutions and services. As per 4^th March 2022 announcement, EHL was removed from the S&P/ASX 300 Index, effective from March 22, 2022.

1HFY22 Financial and Operational Highlights:

• The revenue for the company grew by ~24.8% and net profit increased by $26.9 million on pcp basis.
• The company’s strong free cash flow was reported as $29 million, with a cash conversion ratio of 93%. The accounts were closed with a cash balance of $61 million as of 31^st December 2021.

Key Metrics (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity and Funding Risk: The company operates a high capital-intensive business, which requires a consistent flow of funding; any shortage of funds could impact its business operations.
• Regulatory Risk: EHL is exposed to a more complex regulatory environment; any failure could lead the business to fines, penalties, etc.

Outlook:

EHL announced operating EBITDA guidance of $250 to $260 million for FY22. The range shows strong rental growth and steady growth in Pit N Portal and Force Workshops. The company is trying to cope up with the COVID-19 impact on absenteeism, especially the eventual WA border opening.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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: The stock of EHL is trading near its 52-week low of $0.815. The stock has been corrected by ~10.05% and ~5.55% in the past one and three months, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 disruptions, and ineffective cost structure, etc. For the purpose of valuation, peers such as Seven Group Holdings Ltd (ASX: SVW), Stealth Global Holdings Ltd (ASX: SGI), and Acrow Formwork and Construction Services Ltd (ASX: ACF) have been considered. Considering the expected upside in valuation, increasing revenue, decent liquidity position, COVID-19 impact on absenteeism, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.850, down by ~1.735%, as on 16 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

EHL Daily Technical Chart, Data Source: REFINITIV 

Ai-Media Technologies Limited

AIM Details

Share Buy Back Update: Ai-Media Technologies Limited (ASX: AIM) is an Australian media technology company which provides live and recorded captioning, transcription, and translation services. A total of 25,000 shares were bought back on 16 March 2022, where the plan includes buying back up to 2 million shares.

1HFY22 Financial Highlights:

• On 14 March 2022, Cheryl Hayman was appointed as Non-Executive Director.
• As per its half-yearly report released, the company recorded ~30% growth in its revenue, and with the improvement in EBITDA, company’s gross margin improved from 38% to 53%.
• The accounts were closed with the strong cash balance of ~$15.9 million as of 31^st December 2021.

Revenue, EBITDA & NPAT (Source: Analysis by Kalkine Group)

Key Risks: The company’s operation could be impacted by any macro-economic events like COVID-19, and financial and operational health could be under threat. Other factors like peer competition and delays in customer onboarding can also affect the company’s performance.

Outlook: Along with the strong growth in the higher margin business lines of connected Devices and SaaS delivered across the iCap gateway network, combined with the erosion of Ai-Media’s legacy Live 0Enterprise business due to free ASR tools, is expected to deliver modest revenue growth with the guidance as ~$60-$62 million in FY22 ($49.2m in FY21). Moreover, it expects a significant improvement in margin leading to forecasted gross margin between 53-54% (42% in FY21) along with the positive EBITDA for FY22.

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

Source: 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: The stock of AIM is trading near its 52-week low of $0.545. The stock has been corrected by ~23.68% and ~41.12% in the past three and six months, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering macroeconomic uncertainties, and peer competition etc. For the purpose of valuation, peers such as Straker Translations Ltd (ASX: STG), Nine Entertainment Co Holdings Ltd (ASX: NEC), and Ooh!Media Ltd (ASX: OML) have been considered. Considering the expected upside in valuation, growing revenue, and decreasing net losses, decent long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.575, as on 16^th March 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

AIM Daily Technical Chart, Data Source: REFINITIV 

Danakali Limited

DNK Details

Danakali Limited (ASX: DNK) is involved in the exploration and development of potash and its segments includes Colluli Potash Project, which is located in the Danakil region of Eritrea, East Africa. This project is a joint venture between Eritrean National Mining Corporation (ENAMCO) and Danakali.

Q4FY21 Summary:

• As per the quarterly report ended 31 December 2021, the company decided to produce potentially economic MgCl₂ from two sources at its Sulphate of Potash (SOP) production operation after reviewing the potential growth option of Magnesium Chloride (MgCl₂) at Colluli.
• DNK confirmed the presence of 347 Mt of Rock Salt resource after reassessing Sodium Chloride (NaCl) resource at Colluli.
• The Colluli Project is expected to produce ~128 Mt of Rock Salt in the first 60 years, production at the rate of 1.8 million tpa from Modules 1 and 2, which will create another potential revenue stream as Rock Salt prices rise 47% Y-o-Y from 2020-2021.
• With the Nil cash receipts in fourth quarter, the company’s cash and cash equivalents stood as $22.8 million as of 31^st December 2021, against $25.25 million as on 30 June 2021.

Cash Position (Source: Analysis by Kalkine Group)

Key Risks:

• Strategic Risks: DNK’s growth is fully dependent on the success of a single asset in a remote region in Eritrea. Any adverse event affecting the Colluli Potash Project (Project) could impact its operations.
• Price Risk: The company’s operational and financial performance could be impacted by the adverse movement in the prices of commodities globally.
• Climate Change Risk: DNK’s performance could be impacted by an extreme change in climate, which could temporarily pause its operations.

Outlook: The Rock Salt prices have risen ~47% Y-o-Y from 2020-2021 and current average spot price is US$50 – US$60 per tonne. The company believes that the Colluli Potash Project will produce an estimated 128 Mt of Rock Salt in the first 60 years at a production rate of 1.8 million tpa from Modules 1 and 2, contributing towards another stream of revenue for the company.

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

Source: 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: The stock of DNK is trading near its 52-week low of $0.295. The stock has been corrected by ~4.62% and ~23.46% in the past one and three months, respectively. The stock has been valued using P/B multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/B multiple, considering the COVID-19 disruptions, delays and labor constraints. For the purpose of valuation, peers such as Kalium Lakes Ltd (ASX: KLL), Clover Corporation Ltd (ASX: CLV), and Orica Ltd (ASX: ORI) have been considered. Considering the expected upside in valuation, decent liquidity position, COVID-19 impact, nil debt, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.310, up by ~3.333%, as on 16^th March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DNK 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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