Stocks’ Details

EROAD Limited

Decent Growth in Topline and Bottom Line: EROAD Limited (ASX: ERD) provides technology solutions to manage vehicle fleets, support regulatory compliance, improve driver safety, and reduce costs associated with driving. The market capitalisation of the company stood at $407.84 million as on 22^nd January 2021. For the half-year ended 30^th September 2020 (1H FY21), the company recorded revenue amounting to NZ$45.8 million, up by 19% over 1H FY20, which indicates growth across all regions. EBITDA for the half-year rose by 29% to NZ$15.3 million, indicating accelerated R&D and spend-to-save initiatives. In addition, EROAD grew contracted units by 5,705 during the half-year. The company possesses a strong customer value proposition, which is being aided by continued growth in contracted units, stable SaaS Average Revenue Per Unit and asset retention rate.

Key Financials (Source: Company Reports)

Outlook: For 2H FY21, the company is expecting a small increase in revenue as compared to the results of 1H FY21. In addition, the company expects the percentage revenue growth in FY22 to strengthen.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During the half-year, the company successfully raised a total of $53 million, which was comprised of $42 million via a private placement and $11 million through an oversubscribed share purchase plan. The stock of ERD has moved up by 27.69% in the last three months. Currently, the stock is trading above its 52-week low-high average of $4.400. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price with correction of high single digit (in percentage terms). On a technical analysis front, the stock has a support level of ~$4.803 and a resistance level of ~$5.169. Therefore, considering the aforesaid facts, higher valuation, and current trading level, we are of the view that most of the positive factors have been discounted at the current trading level and give an “Expensive” rating on the stock at the current market price of $5.060 per share, up by 1.606% on 22^nd January 2021. We further suggest investors to wait for a better entry-level.

Osprey Medical Inc

European CE Marking Approval: Osprey Medical Inc (ASX: OSP) is engaged in the development and commercialisation of its proprietary DyeVert System. The market capitalisation of the company stood at $34.09 million as on 22^nd January 2021. During the quarter ended 30^th September 2020 (Q3 FY20), the company reported a rise of 68% in sales revenue to US$379k over Q2 FY20. In addition, the company experienced a bounce-back in sales during August and September 2020 and recorded growth of 40% and 50%, respectively. The company witnessed an improvement of 65% and 48% in operating cash outflows and net cash used in operations to US$2.9 million and US$2.7 million, respectively. In the month of August 2020, the company received European CE Marking approval for the 2nd generation DyeVert Power XT system, which allows the company to sale and market its product across Europe.

Cash Flows (Source: Company Reports)

Stock Recommendation: Looking forward, the company expects its direct salesforce to continue to penetrate existing regions. Also, the company has scheduled to release its result for the quarter ended 31^st December 2020 on 28^th January 2021.

Stock Recommendation: The company closed the September 2020 quarter with a cash balance of US$7.0 million. The company also added A$1.7 million through the issue of new options after the end of the quarter. In the past three, the stock of OSP has corrected by 12.49%. On a TTM basis, OSP has an EV/sales multiple of 5.9x, which is lower than the industry median (Healthcare Equipment & Supplies) of 6.8x. In addition, the stock is trading at a price to book value multiple of 2.7x against the industry median (Healthcare Equipment & Supplies) of 4.6x on TTM basis. Thus, it can be said that the stock is undervalued at the current trading level. On a technical analysis front, the stock has a support level of ~$0.007 and a resistance level of ~$0.06. Hence, considering the decent growth in sales, receipt of European CE Mark Approval, decent outlook, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.021 per share on 22^nd January 2021.

Jadar Resources Limited

Capital Raising for Advancing Exploration: Jadar Resources Limited (ASX: JDR) is engaged in the exploration of minerals. The market capitalisation of the company stood at $23.34 million as on 22^nd January 2020. Recently, the company announced that it is seeking to raise up to $1.8 million from the issue of up to 60 million shares at $0.03 per share to sophisticated and institutional investors. The funds raised from the placement would be deployed for advancing exploration activities on existing projects, specifically within Latin America. In the month of December 2020, the company inked an option to acquire a 100% stake in the 2,707.2 hectare La Fortuna gold-copper project in Guerrero, Mexico. The company added that La Fortuna is highly complementary to the recently acquired Tierra Blanca1 project also located in Mexico.

Quarterly Highlights: During the September 2020 quarter, the company reached a Sale & Purchase Agreement to acquire metals portfolio of Moreton Resources Limited, which comprises of 5 exploration tenements (EPM’s), 1 mining lease (ML) and in-situ crushing, screening, stacking, treatment and refining facilities. During the quarter, the company has appointed Mr Navinderjeet Singh as Executive Director. The company recorded net cash outflow from operating and investing activities of $177k and $429k, respectively. In addition, the company recorded a rise in losses to $1,972,726 in FY20 from $1,231,651 in FY19.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company is planning to continue to undertake appropriate exploration and evaluation activities in order to maintain tenure of its exploration licences and determine the technical prospectively of the projects.

Stock Recommendation: As on 30^th September 2020, the company had cash and cash equivalents of $1.9 million. In the last six and nine months, the stock of JDR has surged 85% and 270%, respectively. In addition, the stock is trading at a price to book value multiple of 8.0x against the industry median (Metals & Mining) of 3.2x on TTM basis. Also, the company has consistently recorded negative ROE and ROIC in the past few years. On a technical analysis front, the stock has a support level of ~$0.022 and a resistance level of ~$0.042. Thus, considering the rising business losses, absence of revenue and current trading level, we advise investors to avoid the stock at the current market price of $0.037 per share, up by 2.777% on 22^nd January 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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