Stocks’ Details

Aurelia Metals Limited

March Quarter Update:Aurelia Metals Limited (ASX: AMI) is an Australian gold and base metals mining and exploration company which operates 100%-owned, polymetallic Peak and Hera underground mines. For the quarter ending 31 March 2020, the company reported gold production of 14.3 koz at AISC of A$2,996/oz. The gold production was lower when compared to the prior quarter, due to lower grade stopes at Hera and reduced Peak throughput from plant upgrade tie-ins and shaft outage. For the period, the company reported sales revenue of $54.3 million. As at 31 March 2020, the company had cash in bank of $51.4 million with zero debt in the balance sheet.



Gold and Base Metals Production (Source: Company Report)

Progressing with Growth and Exploration: During the March 2020 Quarter, the company commissioned a $53 million upgrade of the Peak ore processing circuit. The upgraded Peak process plant is now fully operational and has the flexibility to produce gold doré and separate copper, lead and zinc concentrates at higher throughput rates from high-grade gold and/or base metal feed. During the quarter, a number of exceptionally high-grade gold and base metal intercepts were returned from the Federation deposit, confirming a contiguous, steeply-plunging zone in the northeast of the Federation deposit defined by high grade massive and semi-massive sulphide mineralization.

Covid-19 Update:In response to covid-19, the company has implemented various measures targeted at minimising the risk of potential transmission of virus. However, due to the uncertainty surrounding the spread, duration and impact of COVID-19, the company has withdrawn its FY20 guidance or outlook.

Valuation Methodology:Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The company currently is in a strong net cash position with no debt. In the past six months, the stock of AMI has declined by 37.62% and is currently trading towards 52-week low, offering an opportunity for accumulation. We have valued the stock using Price to book value multiple based illustrative relative valuation method and have arrived at a target price of lower double-digit upside (in % terms. Considering the company’s strong net cash position, recent exploration progress, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.310, down by 1.587% on 8 May 2020. 

Liontown Resources Limited

86% Increase in Kathleen Valley Resource: Liontown Resources Limited (ASX: LTR) is a battery metals exploration and development company focused on developing its Kathleen Valley Project to a standalone mine. During the March 2020 quarter, the company saw 86% growth in Kathleen Valley resource as further drilling success paves way for next upgrade. Further, the positive Pre-Feasibility Study (PFS) reported over the quarter, identified various opportunities to improve the financial metrics for the Kathleen Valley Project. 

Response to COVID-19:In response to Covid-19, the company has reassessed its strategic objectives and funding position to ensure that it can maintain development momentum at Kathleen Valley in 2020. Liontown has also introduced company-wide protocols, in line with the instructions of Government and health authorities.  In order to conserve cash, the company’s Managing Director and COO have agreed to reduce the cash component of their remuneration by 45% and 40% respectively for the foreseeable future. The Board has also resolved to issue a type of unlisted performance right to directors and employees of the Company on a quarterly basis as part of salary sacrifice arrangements. Details of that are mentioned in the below table:


(Source: Company Reports)

What to expect: This year, the company’s programs will be focused on plant operability and the ability to produce a premium-quality product that can be marketed accordingly. The updated MRE, which is due in late April/early May, will provide a solid and much improved basis for a DFS, which is now planned to commence in 2021.

Stock Recommendation: At the end of the March quarter, the company had a cash balance of $5.83 million. The stock of LTR has generated a return of 22.22% in the last three months and 50.68% in the last one month. In the upcoming months, the company is expected to come up with various test work results and studies. Hence considering the aforesaid facts along with returns in the past one and three months, we have a watch stance on the stock at the current market price of $0.120, up by 9.091% on 8 May 2020. 
 

Smartgroup Corporation Ltd

Covid-19 Update:Smartgroup Corporation Ltd (ASX: SIQ) is a specialist employee management services provider, which provides salary packaging, fleet management and various other employee management services to the organisations across Australia. On 27 March 2020, the company provided an update on COVID-19 Pandemic, wherein it informed that its performance for the two months to 29 February 2020 was in-line with the performance for the corresponding period in 2019. However, due to recent public health measures that have been implemented, the company is witnessing signs of reduced business activity particularly across sales leads for new novated leases. The company has advised that it is well capitalised and has adequate cash to support business operations.  The company recently released a notice of change of interests of the substantial holder, wherein it informs that Mitsubishi UFJ Financial Group, Inc. has decreased its holding in the company from 8.98% to 6.63%.

Decent FY19 Results:For the year ended 31 December 2019, the company reported a revenue of $249.8 million, up 3% on the previous year. Further, the company reported NPATA of $81 million, up 4% on the previous year. For the year, the company declared a total ordinary dividend of 43.0 cents per share, up 4% from CY 2018, with a special dividend of 20.0 cents per share.


FY19 Results Snapshot (Source: Company Reports)

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

EV/EBITDA Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The company currently has cash balance in excess of $60 million and net debt of around $36 million. In the past six months, the stock declined by 54.22% on ASX. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price with a limited upside. For the purpose, we have taken peers like Mcmillan Shakespeare Ltd (ASX: MMS), SG Fleet Group Ltd (ASX: SGF) and Eclipx Group Ltd (ASX: ECX). Amid Covid-19 Pandemic, the company is planning and repositioning itself for reduced trading conditions to persist for some time. Currently, there are signs of reduced business activity particularly across sales leads for new novated leases. Hence considering the aforesaid facts, we have a watch stance on the stock at the current market price of $5.220, up 1.359% on 8 May 2020. 

Xref Limited

Resilient Performance in April 2020:Xref Limited (ASX: XF1) is a human resources technology company with a market capitalization of around $24.93 million. For April 2020, the company reported total sales of 0.86 million, up 31% on pcp, despite facing turbulent and disrupted market conditions caused by the pressures of COVID-19 globally and the Easter holiday season. Cash receipts during the month were also strong at $0.97 million, a 37% increase on April 2019. Xref credits used during April totalled $0.64 million with strong growth across various essential services sectors globally.


Workers Referenced on Xref (Source: Company Reports)

Integration Launch with PageUp:Xref Limited and a leading talent management software platform, PageUp, recently announced the live launch of their integration, which will allow PageUp users to access Xref through their existing dashboard and receive status updates without needing to leave the PageUp platform.

Preserving Cash: Since November 2019, Xref’s has been trying to preserve cash by building efficiencies in the acquisition, onboarding, support and growth of clients, developing a host of channel integrations, multi-regional capabilities, and self-serve features; and redirecting marketing efforts from sales support to online lead generation. As a result, the average monthly cash burn rate of the company has reduced by 97%, from $1 million per month in Q2 FY20 to $0.03 million in April FY20.

Stock Recommendation:In the last six months, the stock of XF1 has declined by 64% on ASX and is trading close to its 52-week low, offering investors a decent opportunity for accumulation. On TTM basis, the stock is trading at an EV to Sales multiple of 2x, slightly lower than the industry Median (Professional & Commercial Services) of 2.1x. Considering the company’s recent operational and financial performance, initiatives taken to preserve cash, and current trading levels, we give a “Speculative Buy” rating to the stock at the current market price of $0.170, up by 21.429% on 8 May 2020. 


 
Comparative price Chart (Source: Refinitiv, Thomson Reuters)

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