How Should Investors Perceive these Small-cap Stocks- NXS, HRZ

Next Science Limited

NXS Details

Change of Directors’ Interest: Next Science Limited (ASX: NXS) is a medical technology company engaged in commercialising and developing its Xbio technology. In March month, its directors Bruce Hancox, Daniel Spira and Mark Compton AM acquired 34,482, 28,735 and 34,482 fully paid ordinary shares, respectively.

Successful Share Purchase Plan Completion: Recently, the company has completed its share purchase plan (SPP) offer to raise up to ~A$4.8 million, which opened on 4 March 2022 and closed on 18 March 2022. The funds will be mostly used to enhance the business’ growth profile and invest in sales and marketing; clinical studies to provide further evidence of the efficacy of XPERIENCE^TM; and cement the balance sheet and provide working capital flexibility.

FY21 Highlights: During FY21, the company posted a ~160% growth in revenue with recovery in surgical procedures and wound care clinics volumes and a gross margin of 78%.

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: NXS operates in a very competitive environment; hence rising market share of competitors in the industry could pose an operational risk to the business. NXS is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: With respect to XPERIENCE^TM, the company plans to focus on enhancing penetration across accounts, growing the account manager teams, and increasing market coverage with White Label products for designated market segments in 2022-2023. After 2023, the company would pursue continued growth of market coverage through direct and indirect representation.

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 NXS is trading close to its 52-week low level of $0.865, offering a decent opportunity for accumulation. The stock has been corrected by ~3.33% and ~28.68% in the past one and three months, respectively. The stock has been valued using an EV/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 discount to its peers’ average EV/Sales multiple, considering the COVID-19 uncertainties and inefficiency in generating profits, etc. For the purpose of valuation, peers such as Anteris Technologies Ltd (ASX: AVR), Ansell Ltd (ASX: ANN), Nanosonics Ltd (ASX: NAN), and others have been considered. Considering the indicative upside in valuation, growing revenue, capital raising, decent liquidity position, decent long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.870, down by ~3.334% as on 30 March 2022.

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.

NXS Daily Technical Chart, Data Source: REFINITIV 

Horizon Minerals Limited

HRZ Details

Projects Update: Horizon Minerals Limited (ASX: HRZ) is an exploration and development company in Australia. Its projects include Boorara Gold Project, Binduli gold project, Teal project, Baden Powell and Windanya project, Kanowna North gold project, Anthill project, Blister Dam project, and Area 54 and Yarmany.

• After Pre-Feasibility Study completion at Cannon Underground Gold Project, it has been resulted in maiden ore reserve of 135kt with the net cash flow generation of A$10.1 million over 16-month life at A$2,600/oz.
• After the independent data review and concept study completion, its Nimbus Silver Zinc Project has estimated global Mineral Resource of 12.1Mt grading 52g/t Ag for 20.2Moz of silver and 0.9% Zn for 104kt zinc.
• The updated Pre-Feasibility study got completed at 1.8Bt Richmond Vanadium Project, and the Bankable Feasibility Study is also into progress.
• Horizon’s 25% interest with JV partner Richmond Vanadium Technology (75%) will combine interests for a dedicated IPO vehicle and its ASX listing

1HFY22 Highlights:

Financial Summary (Source: Analysis by Kalkine Group)

Key Risks: HRZ operates into exploration business, where it is dependent on the commodity price fluctuations and its profitability is dependent on the fluctuations. Another risk is labor availability risks.

Outlook: With the increasing demand forecast from the manufacturing of electronic devices, electricity transmission and photovoltaic cells utilised in electric vehicles and solar panels, silver is currently trading at A$34/oz and zinc at A$5,200/t. The company is intended to invest in the vehicle IPO structure, where the record date for the in-specie distribution and timing is expected in early June Quarter 2022.

Stock Recommendation: The stock of HRZ is trading below its 52-week low-high average of $0.099 - $0.150, respectively. The stock has been corrected by ~8.33% in the past one month. On a TTM basis, the stock of HRZ is trading at Price-to-Book multiple of ~1.0x, lower than the industry (Metals and Mining) median of ~2.3x, thus seems undervalued. Considering the current trading levels, projects updates, vehicle IPO in near future, growing ROE and gross margin, optimistic outlook of silver prices, valuation on TTM basis, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.110, down by ~4.348%, as on 30 March 2022.

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.

HRZ 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 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 analysis has been achieved and 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 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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