AMA Group Limited

AMA Details

Cancellation of Performance Rights: AMA Group Limited (ASX: AMA) operates complementary businesses in the vehicle accessories market and vehicle accident repairing. It operates segments of vehicle panel repairs, automotive parts, and accessories. On 24 December 2021, AMA forfeited ~699,936 performance shares of an employee due to the lapse of a long-term performance rights plan.

AGM Presentation Highlights:

• The company believes growth in procurement, production, and partnerships will underpin business growth, cashflow generation, and increase in margins. AMA has been building out its procurement capabilities for the future. In the production segment, it has grouped the repair sites into Drive and Non-Drive units to optimise the network performance of the business units.
• The firm reported that the averages for the Drive and Non-Drive business units in Australia exhibited ~37% and ~16% unused booking capacity, on a normalised basis, respectively.
• AMA experienced reduced repair volumes in New South Wales (NSW) and Victoria due to longer than expected COVID-19 shutdowns in Q1FY22 (ended 30 September 2021) and continuing in Q2FY22.
• AMA has repaid ~$72.5 million of bank debt from the recent capital raising in September 2021 and changed its banking structure with no loan facilities maturing before October
• AMA is witnessing an increase in traffic in Victoria and NSW, hence, is confident that the repair volumes will also recover strongly and correspondingly.
• AMA exited October 2021 with over ~$100 million in cash due to a recent capital raising in September 2021.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the COVID-19 impact of lockdowns via reduced mobility and repair volumes in its key markets of Victoria and NSW. New partnerships and company acquisitions also pose risks to business growth. 

Outlook:

• AMA expects the repair volumes to recover gradually in 1HFY22 as restrictions continue to ease and normalise more in 2HFY22.
• The company believes in its team capabilities at the site and corporate level and in the effectiveness of its strategies implemented to deliver results.
• The company prioritises margin expansion, operational efficiencies, and higher volumes to offer an improved proposition to customers across repair and vehicle types.
• AMA plans to expand via acquisitions and partnerships with fleet partners and insurers. It foresees opportunities to expand the supply chain in its parts purchasing business segment.

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 AMA gave a negative return of ~3.37% in the past three months and a negative return of ~23.04% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.383 - $0.807. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering the continuing COVID-19 lockdowns in key markets, reduced repair volumes, and high debt-to-equity ratio. For this purpose of valuation, few peers like SG Fleet Group Limited (ASX: SGF), Mader Group Limited (ASX: MAD), BSA Limited (ASX: BSA), and others have been considered. Considering the low trading levels, increase in traffic, expected rebound in trading conditions based on the past experiences, indicative upside in valuation, plans to grow alliances & make strategic acquisitions, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.430, as of 30 December 2021.

AMA Daily Technical Chart, Data Source: REFINITIV  

Electro Optic Systems Holdings Limited

EOS Details

Q3FY21 (ended 30 September 2021) Results: Electro Optic Systems Holdings Limited (ASX: EOS) is a technology company operating in Space, Defense, and Communications.

• EOS reported ~$23.98 million cash receipts from customers and net operating cash outflows of ~$22.45 million in Q3FY21.
• The company plans to invest in the US subsidiary, SpaceLink, and raise funds for the ~US$300 million satellite manufacturing contract awarded to OHB Systems recently. EOS plans to use ~US$400 million of equity and ~US$300 million debt for funding the ~US$700 million expansion of its SpaceLink business.
• The Space Systems division now constitutes Communications Systems as well. It comprises SpaceLink, EM Solutions, and Space Technologies entities and is expected to grow considerably in 2022. The company reported that the EBIT of the division has improved due to a higher number of orders and volume. EOS expects the business volume of the division to further increase in 2022.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological investment, forex headwinds, peer competition, regulatory delays, and persistent COVID-19 impact.

Outlook:

• EOS is following up on multiple contract opportunities, most of which are expected to culminate over the next 15 months.
• It is currently intalks to raise a pre-IPO convertible note offer (tranche 1 equity funds) and will update the shareholders upon the finalisation of another funding round. For further equity raising, EOS is exploring funding options including listing SpaceLink on a major exchange in the next 18 months.
• EOS is now targeting to achieve a modest underlying EBIT of ~$4 - ~$8 million for FY21 instead of previously estimated ~$18 - ~$21 million.
• The revenue guidance was narrowed down to ~$215 - ~$220 million from ~$230 - ~$240 million for FY21.

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 EOS gave a negative return of ~32.06% in the past three months and a negative return of ~47.52% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.230 - $6.140. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering the persistent COVID-19 impacts, higher business development and expansion costs, and downgraded earnings guidance for FY21. For this purpose of valuation, few peers like Quickstep Holdings Limited (ASX: QHL), Orbital Corporation Limited (ASX: OEC), PTB Group Limited (ASX: PTB), and others have been considered. Considering the low trading levels, expected rise in the business volume of the Space and Communications Systems divisions in 2022, expected benefits from the enlargement of the Space Systems division, & reorganisation of the Defence Systems division, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.320, as of 30 December 2021, 3:30 PM (GMT+10), Sydney, Eastern Australia.

EOS Daily Technical Chart, Data Source: REFINITIV  

BSA Limited

BSA Details

New Director Appointed: BSA Limited (ASX: BSA) is a provider of technical services across utility and communications infrastructure, and property solutions. BSA runs advanced property solutions (APS), and utility & communications Infrastructure (CUI) as its core segments. BSA recently appointed Mr. Brendan York as a new Non-Executive Director. It also informed that Christopher Halios-Lewis, a Non-Executive Director, in BSA does not hold a relevant interest in the shares of Birketu Pty Limited nor is an associated party of the company upon review.

AGM Presentation Highlights & Trading Update FY22:  

• The company acquired Catalyst ONE in FY21 and sought access to the growing mobile tower market for its CUI division, presenting a significant market opportunity. BSA has well-integrated the leadership team of Catalyst ONE in 2021.
• In early FY22, BSA secured key tenders with NSW Telecommunications Authority, Sydney Catholic Schools, Gatton Correctional Facility, etc.
• BSA experienced a temporary downturn in the business during 1HFY22 due to COVID-19 impact on profitability and volume across CUI and APS. It has rationalised costs and reduced manpower as applicable during the period.
• BSA has a healthy pipeline of works across CUI and APS divisions. It expects the work pipeline and secured CUI contracts to underpin revenue growth in FY22.

Underlying EBITDA Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of diversifying its revenue base, accrual of synergies from integration, ongoing government protocols on the construction sites. It also faces COVID-19 related tender delays, reduced infrastructure spending, and trading volumes.   

Outlook:

• It expects deferral of work for the APS (maintenance) division to rebound as soon as the COVID-19 restrictions ease.
• The company prioritises exploring a new revenue stream via an acquisition which leads to earnings accretion, geographical & scale expansion, and margin improvement.
• For 1HFY22, BSA targets revenue in the range of $200-$210 million with an underlying EBITDA loss of $2.0- $4.0 million. The company is on track to target ~$750 million in revenue and a minimum EBITDA margin of ~6% - 8% by FY24.

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 BSA gave a negative return of ~13.79% in the past three months and a negative return of ~21.87% in the past six months. The stock of BSA is currently trading closer its 52-week low price level of $0.230. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/Sales multiple, considering the continuing COVID-19 impact of lockdowns, delays in award of new contracts, restrictions on the construction activity. For this purpose of valuation, few peers like Millennium Services Group Limited (ASX: MIL), Downer EDI Limited (ASX: DOW), NRW Holdings Limited (ASX: NWH) have been considered. Considering the low trading levels, contracts secured in FY21 and early FY22, work pipeline across divisions, ongoing cost rationalisation measures, expected gradual return to normalised conditions, & robust increase in demand for services in 2022, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.250, up by ~2.040%, as of 30 December 2021.

BSA 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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