Stocks’ Details

Orbital Corporation Limited

FY20 Performance Highlights: Orbital Corporation Limited (ASX: OEC) is an international developer of innovative technical solutions for a cleaner world. It provides innovation, design, product development, and operational improvement services to the producers and end users of engines. As on 22 September 2020, the market capitalization of the company stood at ~$82.24 million. During FY20, the company delivered revenue of $33.8 million, in-line with its guidance and a net profit of $1.85 million. During the year, it signed new development contracts with Northrop Grumman and one of Singapore’s largest defence companies. Despite the uncertain market conditions, the company’s sites in Australia and the USA were fully operational and continue to manufacture as normal. During FY20, OEC reported a healthy balance sheet with a cash balance of $14.68 million and net current assets of $11.8 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook and Guidance: The company has provided guidance for FY21 and expects to report revenue in the range of $40 million to $50 million. The company is focused on improving its earnings and profitability and is targeting new customer contracts and involvement in Defence UAV programs. The new contracts demonstrate the growing reputation of the company as a world-leading supplier of propulsion solutions and flight-critical components.

Stock Recommendation: The company retains a tier 1 client base and is working on transitioning its earnings to sustainable underlying earnings. As per ASX, the stock of OEC gave a significant return of 165% in the past six months but a negative return of 15.20% in the last one month. The stock is also trading slightly above the average trading levels and thus seems overvalued. On the technical analysis front, the stock of OEC has a support level of ~$0.34 and a resistance level of ~$1.21. On a TTM basis, the stock of OEC is trading at an EV/EBITDA multiple of 17.3x, higher than the industry median (Aerospace & Defence) of 11.6x and thus seems overvalued. Considering the current trading levels, volatility in returns, decent long-term outlook and softer market conditions, we suggest investors to wait for a better entry level. Hence, we give an ‘Expensive’ rating on the stock at the current market price of $1.020, down by 3.774% on 22 September 2020.

Emerge Gaming Limited

Set to Launch MIGGSTER Mobile: Emerge Gaming Limited (ASX: EM1) is engaged in the development and marketing of online eSport and gaming tournament platform technology branded - ArcadeX. As on 22 September 2020, the market capitalization of the company stood at ~$28.71 million. The company has recently announced that it is set to launch a social gaming tournament platform, MIGGSTER Mobile, which will leverage world class technology to deliver gaming entertainment and social engagement. The company is targeting a high value demographic at a premium monthly fee and is likely to offer its subscribers prizes and rewards pools of ~US$500k. The company has become an Independent Software Vendor of Microsoft. This will help the company to leverage new edge zone computing capabilities.

International Footprint with Revenue Generative Partnership: The company has signed a first phase licencing agreement with Tecnología de Impacto Multiple S.L to build the biggest online casual gaming community by leveraging an affiliate network of over 10 million members. The agreement is likely to broaden EM1’s market reach to over 150 markets.

FY20 Financial Highlights: During FY20, the company generated a revenue of $31.09k, reflecting a substantial fall of 80% on the pcp. This was mainly because the platform was under development or in testing in limited live environments. In the same time span, the company witnessed a loss of $1.29 million. During the year, EM1 reported a cash balance of $1.99 million.

FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The company has achieved a milestone of 10,000 new subscribers and is setting a new benchmark for future growth. The user adoption metrics show that the platform’s value proposition is appealing to subscribers. As per ASX, the stock of EM1 gave a return of 168.75% in the past three months and a return of 43.33% in the last one month. The stock is currently trading close to its 52-weeks’ high level of $0.053 and thus retains limited potential for further growth. On a technical analysis front, the stock of EMI has a support level of ~$0.03 and a resistance level of ~$0.049. On a TTM basis, the stock of EM1 is trading at a price to book value multiple of 16.1x, higher than the industry average (Software & IT services) of 9x. Considering the current trading levels, uncertain market conditions and a significant fall in its revenue, we suggest investors to keep an eye on the business activities and have an ‘Expensive’ rating on the stock at the current market price of $0.044, up by 2.326% on 22 September 2020.

Fe Limited

End of an Earn-in Agreement with MIO: Fe Limited (ASX: FEL) is engaged in the exploration and development of minerals. As on 22 September 2020, the market capitalization of the company stood at ~$13.7 million. The company has recently announced that Trident Royalties plc has agreed to accelerate payment of the second tranche of the Evanston Iron Ore royalty sale proceeds which were due in June 2021 to 25 September 2020. The company has recently announced that the Pilbara Tenements does not fit with its development strategy and thus has not elected to earn-in on a 25% Stage 1 Interest in Macarthur Lithium Pty Ltd. It has finalized the orderly close-out of the joint venture.

Acquisition Mining Rights Over Advanced WA Iron Ore Project: The company has announced that it has entered a JV Agreement to acquire a stake of 51% in the Mining Rights Agreement held by GV over the Wiluna West JWD deposit for a consideration of $500k in cash and 12.5 million shares upon settlement. It has also committed to fund an installment of $125k.

Quarterly Activities (For the Period Ended 30 June 2020): During the quarter ended 30 June 2020, the company completed the sale of the Evanston Iron Ore Royalty to TRR Services Australia Pty Ltd, for a total sale price of $7 million. Net cash inflow from operating activities stood at $329k in June quarter. The company ended the quarter with a cash balance of $329k from operating activities.

Quarterly Financial Activities (Source: Company Reports)

Stock Recommendation: The company is exploring its tenure in east Pilbara and is planning to conduct Fixed Loop Electromagnetic Survey ground survey at its Hillside project. As per ASX, the stock of FEL gave a return of 100% in the past three months and a return of 12% in the past one month. The stock is trading very close to its 52-weeks’ high level of $0.031, and thus retains limited potential for further growth. On the technical analysis front, the stock of FEL has a support level of ~$0.010 and a resistance level of ~$0.03. On a TTM basis, the stock of EM1 is trading at a price to book value multiple of 5.6x, higher than the industry median (Metals & Mining) of 2.6x. Considering its current trading levels, lower market capitalisation and gloomy market environment, we suggest to ‘Avoid’ the stock at the current market price of $0.025, down by 10.714% on 22 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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