Stocks’ Details

Superior Resources Limited

A Look at December 2020 Quarter: Superior Resources Limited (ASX: SPQ) is engaged in the exploration of base metals. The market capitalisation of the company stood at $22.03 million as on 1^st February 2021. During the December 2020 quarter, the company finished Stage 1 drilling program at the Steam Engine Gold Project and commenced Stage 2 drilling program at the same project. In addition, the company recognised the new potential fourth lode zone during detailed mapping and rock chip sampling. The net cash outflow from operating and investing activities of $120k and $827k, respectively. The company recorded loss amounting to $461,100 as compared to $549,373 in FY19.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company is focused on the advancement of the Steam Engine Gold Project. It is also focused on the development of battery metals.

Stock Recommendation: As on 31^st December 2020, the cash and cash equivalents of the company stood at $2.3 million. The stock of SPQ has moved up by 66.66% and 300% in the last six and nine months, respectively. In addition, the stock is trading at a price to book value multiple of 5.3x against the industry median (Basic Materials) of 3.0x on TTM basis. Over the span of the past few years, the company has recorded negative ROE and ROIC. On a technical analysis front, the stock has a support level of ~$0.012 and a resistance level of ~$0.021. Hence, considering the low market capitalisation, and loss-making business, negative ROE and ROIC, we advise investors to avoid the stock at the current market price of $0.017 per share, up by 6.250% on 1^st February 2021.

Holista Colltech Limited

Rise in Cash Receipts: Holista Colltech Limited (ASX: HCT) is involved in the development and commercialisation of food ingredients and ovine collagen for cosmetic and biomedical applications. The market capitalisation of the company stood at $18.17 million as on 1^st February 2021. During the quarter ended 31^st December 2020, the company recorded a rise of 76.2% over the previous quarter in receipts from customers to over $1.9 million. During the period, the company received Costanzo’s first order for the World’s lowest GI clean label white bread ingredients as per their binding ~US$2 million /year agreement with Holista. Net cash outflow for the quarter improved to $514,000 against the outflow of $759,000 in the previous quarter.

Cash Flow (Source: Company Reports)

Outlook: For the upcoming quarter, the company is expecting further improvements in net operating cash position as it is well-positioned for revenue growth. In addition, the company possesses adequate fund to execute on current growth plans with sufficient cash to operate beyond the next 12 months.

Stock Recommendation: The company closed the quarter with a cash position of $2.73 million. In the last one and three months, the stock of HCT has corrected 9.72% and 20.73%, respectively. As a result, the stock is inclined towards its 52-week low level of $0.055, offering decent opportunity for accumulation. On a TTM basis, HCT has EV/Sales multiple of 2.2x, which is lower than the industry median (Healthcare) of 16.9x. In addition, HCT is trading at a price to book value multiple of 2.9x against the industry median (Healthcare) of 4.9x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.055 and a resistance level of ~$0.094. Hence, in light of the improvement in cash position, decent outlook, current trading level and key risks with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.065 per share, down by 1.516% on 1^st February 2021.

DXN Limited

Maiden Positive Cash Inflow: DXN Limited (ASX: DXN) is engaged in the construction of data centre modules and sale to third-party data centre owners. The market capitalisation of the company stood at $16.97 million as on 1^st February 2021. For the first time in its history, the company recorded positive cash inflow of $55k from operating activities during the quarter ended 31^st December 2020. This was aided by a reduction in overhead costs and increased cash receipts from customers. Cash receipts for the quarter stood at $1.97 million, reflecting a rise of 89% over the previous quarter. During the quarter, the company recorded new sales of $1.8 million. This includes key contracts secured with Streamline Connect of around $700k for the supply of modules to a large mining customer in the Western Australia Pilbara region, and a contract with APX Partners of around $1.1 million for a cable landing station. For the year ended 30^th June 2020, the company recorded loss amounting to $12,590,529 as compared to $7,373,444 in FY19.

Cash Inflow (Source: Company Reports)

Outlook: For the remaining FY21, the priority of the company revolves around reducing the impact on its customer installations. DXN has reached several sub-contract arrangements to help with commissioning and installation activities in both international and Australian locations in order to offset potential delays and issues caused by Covid-19.

Stock Recommendation: During the quarter, the company successfully renegotiated ANZ facility by reducing repayment costs by $85k per month, assisting in further improving the company's cash position. The company closed the quarter with total available funding of $2.3 million. The stock of DXN has moved up by 77.77% in the last nine months. In addition, the stock is trading at a price to book value multiple of 6.1x against the industry median (Technology) of 5.3x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.007 and a resistance level of ~$0.04 Therefore, considering the aforesaid facts and valuation on TTM basis, 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 $0.016 per share on 1^st February 2021. We further suggest investors to wait for a better entry-level.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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