Fluence Corporation Ltd. 

FLC Details

Appointment of CSO: Fluence Corporation Ltd. (ASX: FLC) is mainly involved in delivering innovative, cost-effective water, wastewater, and reuse solutions to businesses and communities worldwide. On 13 December 2021, FLC announced the appointment of Richard Cisterna as the Chief Strategy Officer (CSO) of the company. The role of CSO will be focused on developing FLC’s North American business including the Caribbean around MABR and Nirobox, both via recurring revenue projects and equipment sales.

First Volume Contract in New Chinese Province: On 12 November 2021, FLC announced that it has secured its first volume contract for packaged plants to treat wastewater from new volume partner Yangzhou Yijian Group Co.

Q3FY21 Result Highlights:

• Rise in Revenue: For Q3FY21, the company reported total revenue of US$20.0 million, up 46% on pcp.
• Decline in Operation Cash outflow: Operating cash outflow for Q3FY21 stood at US$2.0 million down from US$5.9 million in Q3FY20.
• Cash Balance Update: At the end of September 2021, the company had a cash balance of US$16.3 million, as well as US$35.7 million in short and long-term liquid investments

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risk related to COVID-19 related travel restrictions as it can slow down face-to-face meetings, plant commissioning, and new orders. The company is exposed to forex volatility risks as it derives revenues from worldwide customers.

Outlook: FLC is focused on strengthening the businesses in China and Southeast Asia. It plans to launch NIROBOX desalination solutions in the Middle East and Southeast Asia. In addition, FLC aims to strengthen its recurring revenue model in the USA and Caribbean. For FY21, FLC expects its underlying EBITDA to be positive and SPS sales to be in the range of US$35 – 50 million.

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

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: Over the last six months, the stock has corrected by ~13.5% and is trading close to its 52-week low price of $0.150. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight discount to its peers, considering the impact of the COVID-19 travel restrictions, and declining cash balance. For the valuation purpose, peers such as Austin Engineering Ltd (ASX: ANG), Maxiparts Ltd (ASX: MXI), and Zicom Group Ltd (ASX: ZGL), have been considered. Considering the decent sales growth in Q3FY21, modest outlook, current trading level, indicative upside in the valuation, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing price of $0.160, down by ~5.883% as on 21 January 2022.

FLC Daily Technical Chart, Data Source: REFINITIV 

Decmil Group Ltd.

DCG Details

Awarded $18mn Contract for Port Hedland Community Centre Project:  Decmil Group Ltd. (ASX: DCG) provides engineering, construction, and maintenance services to resources, energy, and infrastructure sectors in Australia. On 18 January 2022, the company announced that it has secured a $18.1 million contract from the Town of Port Hedland to construct a new Port Hedland Community Centre building complex.

Secured $27.8 Million In New Contracts: As per operational update provided on 5 Jan 2022, DCG has recently secured government Infrastructure contracts worth $27.8 million, including, $23.3 million with Main Roads, Western Australia and $4.5 million with Queensland Department of Transport and Main Roads.

2021 AGM Highlights: On 5 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that the company is focussed on sustainable growth, by retaining commercial, legal and financial disciplines across our projects.

• FY21 Result Update: For FY21, the company reported normalised EBITDA of $7.6 million and normalised revenue of $313.4 million. Net cash flow from operations stood at $2.7 million in FY21.
• Awarded New Work: During FY21, the company was awarded $350 million of new contracts.
• Strengthened Balance Sheet: During the year, the company strengthened its balance sheet via ~$10 million equity raise as well as by putting the sub-debt facility in place.

Normalised Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: Due to the COVID-19 related restrictions, the company face labor shortage issues. Further, the company is also exposed to the risks related the change in economic and financial market conditions in various countries and regions.

Outlook: With an order book of ~$540 million (contracted and preferred) and a project pipeline of ~ $46 billion, the company seems well positioned for future. The company expects FY22 to be a growth year with revenue already contracted and preferred totalling $445 million.

Stock Recommendation: Over the last six months, the stock has corrected by ~29.06%. The stock has recently touched its 52-week low price of $0.300. On a TTM basis, the stock is trading at a price to book multiple of 0.4x, lower than the industry (Construction and Engineering) median of 2.4x. Considering the company’s decent order book, strengthened balance sheet, modest outlook, current trading level, valuation on a TTM basis, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.30 as on 21 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

DCG Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.