Stocks’ Details

BSA Limited

Signing of Long-Term Contracts: BSA Limited (ASX: BSA) provides contracting services to subscription TV and telecommunication companies who require satellite and telecommunication installation services. The market capitalisation of the company stood at ~$158.15 million as on 4^th January 2021.  Recently, the company, in partnership with Kordia Solutions inked a significant long-term agreement with Telstra Corp Ltd for Field Operations Services for 3 years with a potential extension of 1 + 1 years at Telstra’s discretion. As per the agreement, BSA would mainly provide a range of services, which include design and construct building systems services across its existing Victoria and Tasmania properties. In addition, the company is expecting to produce revenue of around $25 million from the agreement over the first year with opportunities to grow further into the future. Previously, BSA has secured a long-term agreement with nbn Co for Unified Field Operations for the tenure of 4 years with a potential extension of two x two-year at nbn’s election. During FY20, the company recorded revenue amounting to $490.4 million, reflecting a rise of 4.4% over pcp and underlying EBITDA for the period stood at $25.9 million, up by $1.3 million over pcp.

Revenue (Source: Company Reports)

Outlook: For FY21, the company is aiming profitability in its business. In addition, the company is well-placed for future business growth as the economies are returning to normal with the majority of its services are likely to be in high demand.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed FY20 with robust liquidity and balance sheet position to pass through the challenging business environment, supported by the net cash position of $32.7 million. The stock of BSA has moved up by 32.14% in the last nine months. Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in percentage terms). For the purpose, we have taken peers such as Intega Group Ltd (ASX: ITG), Primero Group Ltd (ASX: PGX) and SRG Global Ltd (ASX: SRG), to name few. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.274 and a resistance level of ~$0.411. Considering the price movement in the few months, higher valuation, and RSI level, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.370 per share, up by 1.369% on 4^th January 2021.

Aspen Group

Decent Growth in Revenue: Aspen Group (ASX: APZ) invests in the affordable accommodation sector. The market capitalisation of the company stood at ~$140.80 million as on 4^th January 2021. Recently, the company announced the settlement of acquisition of a partially completed build-to-rent development at Burleigh Heads, Queensland, which comprises 18 large townhouses. The purchase price for the acquisition was $3.15 million before refundable GST and acquisition costs. During Q1 FY21, the company recorded total revenue amounting to $8.79 million, reflecting a rise of 8% over Q1 FY20. In addition, APZ witnessed a rise of 66% in operating profit to $2.85 million.

Financial Summary (Source: Company Reports)

Outlook: Going forward, the company would continue to pursue opportunities to grow its portfolio of affordable accommodation properties in the residential, retirement and short stay sectors through development and acquisition. For 1H FY21, the company is expecting to pay a distribution of 3.10 cents per stapled security, indicating a rise of 12.7% over pcp. The company is scheduled to release its 1H FY21 results on 25^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed Q1 FY21 with a gearing of 22% with no debt maturing until November 2022. In the last six and nine months, the stock of APZ has moved up by 19.21% and 28.72%, respectively. Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in percentage terms). For the purpose, we have taken peers such as Vitalharvest Freehold Trust (ASX: VTH), Eureka Group Holdings Ltd (ASX: EGH) and APN Property Group Ltd (ASX: APD), to name few. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$1.12 and a resistance level of ~$1.23. Considering the price movement in the few months, higher valuation, and RSI level, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $1.210 per share on 4^th January 2021.

Strategic Elements Limited

Rise in Expenditure During September 2020 Quarter: Strategic Elements Limited (ASX: SOR) is a registered Pooled Development Fund (PDF), which is focused on investments in Australian SME across the resources and technology sectors. The market capitalisation of the company stood at ~$75.67 million as on 4^th January 2021. Recently, the company notified the market that testing has affirmed that the printable Nanocube Memory technology possesses the potential as printable brain-inspired (neuromorphic) computing hardware. In addition, work at the University of New South Wales confirmed that the Nanocube Memory structure and operation enables the company to combine computing and memory in one place. During the quarter ended September 2020, the company reported an expenditure of $403k, which include project development, product manufacturing costs and administration costs. The company’s expenditure has increased over June 2020 because of the once of income received in June from R&D rebates, related to FY19 R&D activities.

During FY20, the company reported contract revenue of $244,500 as compared to $51,250 in FY19. The revenue was comprised of $150,000 from the sale of tenements, and the remaining $94,500 was earned from the provisioning of services. SOR posted a loss of $2,547,826 against $1,980,372 in FY19, which mainly indicates the research and development activities of the Group and administration costs.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company is planning to expand the collaboration with Fortune 100 US Company Honeywell and the WA Department of Justice for Autonomous Security Vehicles.

Stock Recommendation: The cash and cash equivalents of the company stood at ~$1.89 million as on 30^th September 2020. The stock of SOR has surged 265.57% and 231.08% in the past three and six months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.265. On a TTM basis, the stock is trading at a price to book value multiple of 33.9x as compared to the industry average (Metals & Mining) of 17.2x. We have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.154 and a resistance level of ~$0.265. Considering the price movement in the few months, current trading levels, higher valuation, and RSI level, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.240 per share, up by 19.999% on 4^th January 2021.

1414 Degrees Limited

Positive Business Case for Aurora Solar Project: 1414 Degrees Limited (ASX: 14D) is engaged in commercialising bulk energy storage solutions to transform intermittent renewable generation into baseload electricity and decarbonise heat supply. The market capitalisation of the company stood at ~$53.99 million as on 4^th January 2021. Recently, the company reported a positive business case for the development of the first stages of its Aurora Solar Energy Project on the National Electricity Market (NEM). The company added that it has appointed independent consultants to model spot energy prices and Frequency Control Ancillary Service (FCAS) revenues from the operation of a hybrid power plant comprising 70MW of solar PV with a 70MWh/70MW battery (BESS) on the high voltage transmission line to the Davenport substation in Port Augusta. The company expects net revenues from operations in the NEM spot market in the ambit of A$25 million and A$30 million for the PV-BESS stage. During September 2020 quarter, the company recorded positive revenue indicators from the modelling of a hybrid PV-battery on its Aurora project. 14D reported net cash outflow from the operating activities of $776k.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company intends to maintain stringent fiscal controls over cash flow. In addition, the core priorities of the company revolve around the development of Aurora project and energy storage technology.

Stock Recommendation: The company closed the quarter with a cash balance of $3.6 million, which was mainly underpinned by $3.175 million from the SPP. The stock of 14D has moved up by 148% and 269.04% in the last three and six months, respectively. As a result, the stock is trading towards its 52-week high level of $0.350. On a TTM basis, the stock is trading at a price to book value multiple of 3.8x, which is higher than the industry media (Industrials)of 2.4x. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.178 and a resistance level of ~$0.349. Considering the price movement in the few months, current trading levels, higher valuation, and RSI level, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.305 per share, up by 12.962% on 4^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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