Metals X Limited

MLX Details

Decent Production Levels: Metals X Limited (ASX: MLX) is engaged in the mining, production, and exploration of copper, nickel, and other base metals. As on 16 September 2020, the market capitalisation of the company stood at ~$73.49 million.

Narrow FY20 Losses: During FY20, revenue of the company went down to $143 million from $204.7 million because of lower prices. In the same time span, the company produced 7,182 tonnes of tin from Renison. Metals X’s 50% share resulted in 3,412 tonnes of tin which was sold at an average realized price of $24,511/t at an All-In Sustaining Cost of $16,761/t. During FY20, the company used $21 million from operating activities and reported a net loss of $80.3 million.

FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The company estimates production of ~98,000 tonnes of tin in concentrate over the ten-year plan. The company also expects the sale of its copper assets and is likely to seek funding development partners for the outright sale of its nickel exploration projects.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

As per ASX, the stock of MLX gave a return of 28.57% in the past six months but a return of 2.41% in the last one month. The stock of MLX is trading at attractive levels, proffering a decent opportunity for the investors to enter the market. On the technical analysis front, the stock has a support level of ~$0.051 and a resistance level of ~$0.085. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, valuation and its estimated production over the ten-year plan, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.079, down by 2.469% on 16 September 2020.

MLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

IPH Limited

IPH Details

Healthy Balance Sheet and Decent Financial Fundamentals: IPH Limited (ASX: IPH) is the leading intellectual property service group that provides filing, prosecution, enforcement and management of patents, designs, trademarks and other IP in Australia, New Zealand, Asia, and other countries. As on 16 September 2020, the market capitalisation of the company stood at ~$1.5 billion.

Progressing the Acquisition of Baldwins Intellectual Property: On 3rd  September 2020, the company announced that New Zealand Commerce Commission is going to give its approval for the proposed acquisition by IPH’s subsidiary, AJ Park, of the business of New Zealand intellectual property firm, Baldwins Intellectual Property. The transaction is expected to complete in mid-October 2020.

FY20 Results: For the year ended 30 June 2020, the company reported total revenue of $370.1 million, up 43% on the previous year. Over the year, the company’s EBITDA grew by 32% to $113.2 million driven by the impact of organic growth, and the acquisition of Xenith IP. Further, the company reported statutory NPAT of $54.8 million, reflecting an increase of 3% on the prior year’s result of $53.1 million. During the year, the group generated positive cash flows from operating activities of $89.8 million. The decent financial and operational performance enabled the Board to declare a final dividend of 15 cents per share, taking the full year dividend to 28.5 cents per share, an increase of 14% on the previous year. It is worth noting that over the last five years, the company has witnessed continuous improvement in its Underlying Revenue and underlying EBITDA as depicted in below graphs.

Revenue and EBITDA 5-Year performance (Source: Company Reports)

Stock Recommendation: Over the last three months, the stock has corrected by 6.54% on ASX and is inclined towards its 52 weeks low price, offering a decent position for accumulation. On a technical front, the stock of IPH has a support level of ~$6.52 and a resistance level of ~$8.56. On a TTM basis, the stock of IPH is trading at an EV/Sales multiple of 4.1x, lower than the industry average (Industrials) of 6.3x, and thus seems undervalued. The company seems well-placed with its resilient business, decent cash flow generation and robust balance sheet metrics with no near-term refinancing commitments. Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $7.12, up by 1.714% on 16 September 2020.

IPH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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