Emeco Holdings Limited

EHL Details

Emeco Holdings Limited (ASX: EHL) provides support services for underground mining in Australia. It operates in three business segments, Rental, Workshops and Pit N Portal. Its Rental segment offers earthmoving equipment solutions. Its Workshops segment provides maintenance and component rebuild services. The company’s Pit N Portal segment offers an array of mining services solutions.

H1FY22 Performance Highlights:

• Revenue witnessed an uptick of 25% to $373 million in H1FY22 over PcP, owing to contract wins in the Pit N Portal segment offsetting weather events and tight labour conditions.
• Operating EBITDA hiked by 3% PcP to $122 million. This translates to an operating EBITDA margin of 39% as compared to 33% in PcP.
• The company’s H1FY22 operating EBITDA is within the target guidance range of $120-$125 million.
• Operating NPAT improved from $26 million in H1FY21 to $32 million in H1FY22.
• As of December 31, 2021, EHL had liquidity of $158 million, with a cash balance of $61 million.
• As announced on March 7, 2022, EHL bought back ~3.58 million shares so far out of the total 54.067 million shares planned.

H1FY22 Result Summary (Analysis by Kalkine Group)

Key Risks: Adverse weather events in late H1FY22 impacted its Rental business. The tight labour market in WA affected its utilization. Fears of lockdown, interest rate hikes, and a slowdown in corporate spending are some of the downside factors limiting margin expansion.

Outlook: EHL is expected to hit operating EBITDA guidance of $250-$260 million in FY22. The company is expecting good growth in the Rental segment driven by increasing demand for equipment in the sight of improving commodity price trends. Margin expansion in Pit N Portal is visible as projects move to the production phase.

Valuation Methodology: Price-to-Earnings 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 has been corrected by ~3.45% in the past three months. The stock of EHL just recovered from its 52-week low price of $0.795. The stock has been valued using a 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, considering the impact of weather events on H1FY22 profitability. For the purpose of valuation, peers such as NRW Holdings Ltd. (ASX: NWH), SRG Global Ltd. (ASX: SRG), Acrow Formwork and Construction Services Ltd. (ASX: ACF), and others have been considered. Considering the expected growth in equipment rental business in the light of the rally in commodity prices, customer wins in Pit N Portal segment, ongoing share buyback program, decent liquidity, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.810, as of May 09, 2022, down ~3.57%. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

EHL Daily Technical Chart, Data Source: REFINITIV 

Mach7 Technologies Limited

M7T Details

Mach7 Technologies Limited (ASX: M7T) operates as a healthcare technology company. It offers medical imaging, data management, diagnostic workflow applications, etc. It operates in two segments – the sale of software and the rendering of professional services.

Business Updates:

• In the nine months ending March 31, 2022, the company showcased a Total Contract Value (TCV) reaching $26.5 million as compared to $23.6 million posted last year. This was driven by strong sales orders from new customers and resellers.
• It had signed over 40 new contracts during the nine months period.
• M7T forged two new channel partnerships in the last 30 days that aid in enhancing its reach in the APAC and Europe regions.
• It had realised $6.45 million from customers in Q3FY22. Operating cash inflows registered at $496k. M7T closed the quarter with a cash balance of $20.57 million.
• On March 21, 2022, Clime Investment Management, along with its affiliate, have reduced its shareholdings in M7T from 10.45% to 8.62%.
• On March 7, 2022, M7T signed agreements with Trinity Health and Penn State Milton S. Hershey Medical Center. With Trinity, M7T will see the implementation of its Enterprise Imaging Platform at Trinity’s healthcare facilities across Southeast Michigan. With Penn State, M7T renewed the licensing terms for two years and to cover 575k procedures annually.

9MFY22 Performance Snapshot (Analysis by Kalkine Group)

Key Risks: Changes in the healthcare regulatory environment may influence the topline growth. The company is exposed to risks of patent infringement. Increasing interest rates may influence healthcare investment.

Outlook: M7T is focused on a recurring revenue model. Seven of its customers have renewed their contracts so far. The company continue to invest in product development within the radiology imaging market. Its partnership with AdvaHealth helps to widen its penetration in Australia and New Zealand markets.

Valuation Methodology: Price-to-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 M7T has been corrected by ~14.69% in the past three months. The stock of M7T touched a new 52-week low price of $0.560 on May 09, 2022. The stock has been valued using a P/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 premium to its peers, considering the uptick in Total Contract Value in nine months ending March 31, 2022. For the purpose of valuation, peers such as Volpara Health Technologies Ltd. (ASX: VHT), Pro Medicus Ltd (ASX: PME), CogState Ltd. (ASX: CGS), and others have been considered. Considering the focus on the recurring revenue model, increase in revenue and EBITDA in nine months period, new contracts, positive operating cash flows, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.560, as of May 09, 2022, down ~8.19%. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

M7T 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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