Quickstep Holdings Limited

QHL Details

Quickstep Holdings Limited (ASX: QHL) happens to be a leading global manufacturer of the composite solutions for the defence as well as commercial aerospace and advanced industry sectors. As of 24 June 2021, the market capitalisation of QHL stood at ~$33.66 million.

Result Performance (Half-Year Ended 31 December 2020 – H1FY21)

Revenue of the company from ordinary activities for the interim period stood at $41,494,000, an increase of 7.94% on previous corresponding period (pcp). The increase in revenue is attributable to ongoing growth in the Joint Strike Fighter (JSF) program volumes to full rate production. EBIT declined from $2,324,000 in H1FY20 to $1,579,000 in H1FY21. Profit from ordinary activities after tax attributable to members for the period stood at $815,000, a decline of 44.44% on pcp. The decrease in net profit is due to unfavourable AUD vs USD exchange rate movements, an end to payroll tax concessions in December 2019 and a modest price decrease on the C-130 contract.

Key Data (Source: Company Reports)

Recent Update:

Recently, the company informed the market that it has secured additional order commitments of $4.7 million relating to the F-35 Vertical Tail production program, from an Australian privately held existing customer of Quickstep. The production program has commenced, and the period of performance is 22 months. The company has a reasonable expectation of further incremental orders on this program.

Outlook:

The company expects its FY21 customer revenues to increase year on year, given no change in the currency AUD v USD exchange rates. It is experiencing a return of COVID-19 led supply chain challenges, mainly related to the air and sea freight. Considering the no change to the current AUD vs USD exchange rate as well as no further deterioration in the supply chain risks, the company is anticipating to garner growth in the PBT over the prior year in the base business. However, reported profits are anticipated to be impacted because of the initial losses from the acquisition of Boeing Australia’s component repair capability.

Key Risks:

The company faces the risk of deteriorating freight capacity as well as port delays, mainly for the raw materials as well as components which are supplied from the US.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has broadly been trading in a down trend. However, for the ongoing week, it has given stronger closing at $0.05. The technical indicator RSI with a reading around 35 indicates weak momentum for the stock.

Going forward, the stock may have resistance around 20 periods SMA of $0.061 whereas support could be around the previous low of $0.043.

Stock Recommendation:

The company’s gross margin, EBITDA margin and net margin for H1FY21 stood at 17.8%, 7.1% and 2.0%, lower than the H1FY20 result of 21.8%, 9.2% and 3.8%, respectively. ROE also declined from 7.2% in H1FY20 to 3.6% in H1FY21.

We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price which reflects the decline of high single digit (in percentage terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering fall in the liquidity position as well as the risks associated. The stock has made a 52-week low and high of $0.044 and $0.105, respectively.

Considering the aforesaid facts, we give “Sell” rating on the stock at the current market price of A$0.051 per share, up by 8.510% on June 24, 2021.

oOh!media Limited

OML Details

oOh!media Limited (ASX: OML) is a leading Out of Home media company, engaged in improving public spaces. The market capitalisation of the company stood at ~$1.09 billion as on 24^th June 2021.

Result Performance (Year Ended 31 December 2020 – FY20)

Revenue of the company from ordinary activities for the full year period stood at $426.525 million, a decline of 34.3% on previous year. Loss of the company from ordinary activities after income tax attributable to members stood at $35.718 million, a decline of 361.3% on previous year. Statutory EBITDA for the period stood at $238.349 million, a decline of 24.0% on previous year. The result can be attributed to the unprecedented restrictions on people movement and resulting audience decline which impacted out of Home more severely as compared to the other media segments.

Key Data (Source: Company Reports)

Outlook:

In response to the pandemic, the company adapted and refined its offer to advertisers, leveraging the strength of its suburban and regional network. It continued to invest in its network assets, including key digital sites such as Military Road in Mosman. The company has strengthened its capacity to manage in the current environment while remaining well positioned to leverage the audience and revenue recovery already evident across the key formats.

Its strategy remains focused on capitalising on the key structural drivers of growth in Out of Home and leveraging the diverse product portfolio, backed by data, to deliver results for advertisers.

Key Risks:

The Company pro-actively manages risks such as strategic risk, operational risks, governance and compliance risk and financial risk. Moreover, the company is exposed to the risks related to the COVID-19 pandemic.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After a strong closing in the previous week, the stock has given a softer closing for the ongoing week at $1.82, forming an ‘Inverted Hammer’ indicating potential bearish reversal for the stock. The technical indicator RSI with a reading around 59 and a curve at the end pointing down, suggests a softening of bullish momentum.

Going forward, the stock may have resistance around the 50% retracement level of $2.218 whereas support could be around the 23.6% retracement level of $1.357.

Stock Recommendation:

The company’s gross margin and EBITDA margin for FY20 stood at 93.2% and 63.3%, better than the FY 2019 figures of 71.6% and 50.4%, respectively. However, its net margin declined from 2.1% in FY19 to -8.4% in FY20.

We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price which reflects the decline of low double-digit (in percentage terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering its negative net margin as well as operational risks. The stock has made a 52-week low and high of $0.705 and $1.950, respectively.

Considering the aforesaid facts, we give “Sell” rating on the stock at the current market price of A$1.820 per share on June 24, 2021.

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.

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