Stocks’ Details 

Clean Seas Seafood Limited

1HFY21 Results Highlights: Clean Seas Seafood Limited (ASX: CSS) is engaged in the breeding, farming, processing, and selling its Yellowtail Kingfish or Hiramasa. For 1H21, the company reported a decrease in revenue by 9% YoY to $22.33 million on a pcp basis. The revenue growth was affected due to the considerable impact on CSS’s Fresh business mitigated through new frozen channels developed to support overall volumes. The fall in the sales price to $15.47/kg by $1.91 in 1H21 reflects CSS’s diversified footprint into new markets & channels. The company utilised the surplus frozen stock to mobilise channel diversification, trials, and long-term contracts with the customers. The volume of production increased to 1,444 tonnes, up by 3% YoY on 1H20. This growth was due to CSS’s diversification into new markets and retail channels in 1H21, recovery experienced in the existing restaurant business as pandemic restrictions eased in several global markets. The Statutory EBITDA and NPAT turned negative for 1H21 amounting, to $19.28 million and $21.87 million, respectively.

During 1H21, CSS repaid its short-term seasonal debt and undertook a convertible note issue via placement with Bonafide Wealth Management AG ($6.4 million net of costs). As of 31 December 2020, CSS held cash and cash equivalents of $9.31 million.

Financial Highlights, 1H21 (Source: Company Reports)

Key Risks: The company faces the risk of ongoing pandemic restrictions on its Fresh business, fish mortalities in the marine leases, volatility in the sale prices and demand of its fish. It also faces risk of managing the overall production volume, cost control, and surplus stock.

Outlook: The company believes that COVID-19 restrictions may affect the timing of realizing its growth strategy. It expects diversification in the retail distribution, gains from the expanded scale (new market access), will drive long-term growth, and complement its current premium foodservice and restaurant business.

Stock Recommendation: The stock of CSS gave a positive return of 16.5% in the past six months and a positive return of 6.01% in the past one year. The stock is currently trading above the 52-weeks’ average price level of $0.35-$0.92. The stock of HWK has a support level of ~$0.648 and a resistance level of ~$0.76. On a TTM basis, the CSS stock is trading at an EV/Sales value multiple of ~2.1x, higher than the industry (Consumer Non-Cyclicals) median of ~1.6x, thus seems overvalued. Considering the current trading levels, growth in production volume for 1H21, valuation on TTM basis, we believe that most of the positive factors have been factored in at the current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.705, up by 6.818% on 5^th March 2021. 

Hawkstone Mining Limited

Positive Results from the Initial test Work: Hawkstone Mining Limited (ASX: HWK) is a miner, explorer, and developer of Lordsburg and Big Sandy projects in the US to explore lithium. It also operates the Western Desert Gold–Copper Project and the Lone Pine Gold Project in the US. On 3 March 2021, the company announced positive results from the initial metallurgical test work undertaken. Results at the Big Sandy Lithium (BSL) Project demonstrate lithium carbonate (Li2CO3) produced at 99.7% purity (exceeding the benchmark) from the recovery of mineralised core drilled. The company awaits further results from the test work and examining avenues to produce battery-grade lithium hydroxide also. On 1 February 2021, HWK reported high-grade assay results from the testing of rock sample and exhibiting the project’s high potential.

Q2FY21 Results Highlights: During Q2FY21, the company confirmed the geological continuity and high grade of the Lone Pine quartz vine zone from the assay results received from the completion of maiden drilling on the Lone Pine Gold (LPG) project in the US. Regional exploration on the project, consisting of the King Solomon Mine, identified five new mineralised gold zones, thereby expanding the land position. During Q2FY21, HWK closed the acquisition of the Devil’s Canyon Gold (DCG) project situated within a well mineralised geological terrain comprising the prolific Carlin Gold Trend. HWK tested 15 rock samples which exhibited high-grade assay results for silver and gold. A photogeological interpretation carried out on the project has identified seven priority targets within the DCG project. At BSL, HWK has completed the environmental assessment.

During Q2FY21, HWK undertook a share placement to raise $3.5 million capital at $0.012 per share from the institutional investors. HWK attached two free unlisted options with every three new shares and will use the funds for lithium, copper, and gold exploration and assets development. It held a cash reserve of $3.22 million as of 31 December 2020.

Cash Flows from Operating Activities, Q2FY21 (Source: Company Reports)

Key Risks: HWK is exposed to the risk of the grant of license to operate from the governments, health and safety of the workforce engaged in mining, and the possibility of replacing workforce with the technology and innovation. The pressure of reducing the carbon footprint globally also impacts the demand and mining operations of lithium. 

Outlook: HWK plans to conduct bench-scale testing for producing battery-grade lithium in March 2021 at the BSL Project. It is also preparing for the pilot-scale phase of the metallurgical test work programs going on. It will begin the next phase of resource drilling subject to the grant of exploration permit from the Bureau of Land Management at the BSL project. HWK looks forward to progressing on WDG and DCG projects to drilling in FY21. At the Lone Pine project, HWK has planned an airborne magnetic survey in FY21.  

Stock Recommendation: The stock of HWK gave a positive return of 236.36% in the past three months and a positive return of 117.64% in the past six months. The stock is currently trading slightly above the 52-weeks’ average price level of $0.003-$0.064. The stock of HWK has a support level of ~$0.033 and a resistance level of ~$0.042. Considering the current trading levels, and significant returns in the past 3 months and 6 months, we believe that most of the positive are factored in at the current juncture. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.037, down by 5.129% on 5^th March 2021.

EZZ Life Science Holdings LIimited

A Look at the 1H21 Results: EZZ Life Science Holdings Limited (ASX: EZZ) is a developer and marketer of consumer health products (under brand EZZ) to New Zealand, Australian retailers, and consumers in China. It also operates as the sole distributor of cosmetic products under brand EAORON. As of 2^nd March 2021, the market capitalisation of the company stood at ~$42.84 million. As of 3^rd March 2021, Macquarie Holdings Pty Limited and JNJ Mok Pty Limited had 40.51% stake and 27.01% stake respectively in EZZ. During 1H21, EZZ reported a revenue of $12.56 million vs $9.06 million in 1H20. Through its prospectus release dated 15 January 2021, EZZ reported revenue of $6.15 million from the sales of a product chosen to be discontinued in November 2020. It launched a substitute product in January 2021 and garnered a revenue $1.79 million from the sales of the new product in the 6 weeks since its launch. Its net profit after tax for 1H21 stood at $1.22 million vs $372k in 1H20. EZZ held cash and cash equivalents of $3.81 million as on 31 December 2020. The company has released a dividend distribution schedule based on the unit’s shareholding on 1 March 2021.

1HFY21 Financial Highlights (Source: Company Reports)

Key Risks: The company’s FY20 revenue exhibits heavy dependence on EAORON branded products (represent 95.8% of EZZ’s revenue) which can be impacted adversely due to fall in demand from the brands’ retailers. EZZ is also dependent on the distribution contract with its related party Australian United Pharmaceuticals Pty Limited for the distribution of EAORON brand. It runs the risk of failure of new products in the market, loss of key customers and stiff competition from its peers. 

Outlook: EZZ plans to grow revenue by strengthening its network of retailers, customers, and geographies. As a short-term goal, EZZ aims to grow profit margins further via direct-to-consumer strategies and offer value added services- in-store merchandising in retailers to grow retailer customer’s sales. In 2-5 years from now, EZZ aims to integrate the supply chain by moving the R&D and manufacturing process functions in-house.

Stock Recommendation: Since its first trading day, the stock has witnessed a rise of 157% from its opening price of $0.68. The stock is currently trading slightly above 52-weeks’ average price level of $0.600-$1.425. On a TTM basis, the stock is trading at an EV/Sales multiple of ~0.5x, lower than the industry (Consumer Discretionary) median of ~1.45x, thereby providing upside potential. However, associated risks include a heavy reliance on the revenue from EAORON branded products, exclusive distribution agreement with Australian United Pharmaceuticals Pty Limited and the risk of launch of its new products in the market. Considering the current trading levels, limited trading history, associated risks, we suggest investors wait for better entry levels and give an ‘Avoid’ rating on the stock at the current market price of $1.070, up by 4.901% of 5 March 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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