Cardno Limited

CDD Details

Contributing to the 'maritime gateway' of the Pacific: Cardno Limited (ASX: CDD) is an infrastructure, environmental and social development company wings in over 100 countries and staffed ~4,000-strong workforce. It has a market capitalization of ~AU$280.38 million as on 15^th April 2021.

As per the release dated 31 March 2021, the company was engaged to support Fiji Ports Corporation Limited (FPCL) to undertake the risk-based assessment, identifying necessary system elements as well as installation locations to allow the safe navigation and operations of its shipping routes, anchorages and berths and to capture crucial information to streamline its recovery of fees related to Pilotage and infrastructure charges.

Further, the company prepared a tender documentation and evaluated commercial proposals, established an Operating Lease paper for the Port to be used for the system provider, and has supported at multiple fronts including design reviews as well as helping with the licensing requirements.

Strategic Partnership with Elite Medical Experts: A per the release dated 11 March 2021, Cardno ChemRisk has entered into a strategic partnership with Elite Medical Experts, that will integrate university physicians and surgeons into health risk evaluations in litigation and consulting.

Cardno ChemRisk specializes in supporting the clients in characterizing the health as well as environmental risk related with complex exposures consisting chemicals, pharmaceuticals, or radionuclides in the variety of media as well as environments. 

H1FY21 Results Update: The company reported a decrease in gross revenue by 10.9% to $433.6 million versus $486.6 million in H1FY20 led by reduced revenue from fees from consulting services, that fell by 8.5% YoY to $309.5 million, followed by decline in fees from recoverable expenses by 15.3% YoY to $123.9 million.

The revenue from Asia Pacific fell by 0.1% to $120.1 million, followed by revenue from America that fell by 9.5% to $169.9 million and international development revenue fell by 18.8% to $140.3 million. Finally, net profit after tax fell by 66.0% to $20.9 million versus $61.5 million in H1FY20.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks:

The financial instruments of the company are exposed to interest rate risk, foreign exchange risk, credit risk and liquidity risk. The company uses multiple methods in understanding and estimating the quantum of risk associated. Notably, methods include sensitivity analysis in the case of interest rate and foreign exchange risks and ageing analysis for the credit risk. Further, the contract assets primarily relate to the company’s rights to consideration for work completed but not billed at the reporting date. Notably, impairment provisions are booked against the particular high risk as well as aged contract assets where billing and recovery is not sure.

Outlook:

The company is focused on its strategies drawn around people development, margin expansion and smart growth (both organic and inorganic). Management is focused towards continually improve financial as well as business discipline via consistent process and policy implementation. Further, it is closing watching any organic and inorganic route to gain access to key markets or skill sets through disciplined M&A process.

Importantly, the company focused towards driving innovation and digital transformation in a planned, cost effective, client focused manner.

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

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

Technical Overview:

Weekly Chart

(Source: Refinitiv (Thomson Reuters))

Note: The yellow color line represents the trend line while the purple color line in the chart depicts RSI (14-period). The green color histograms at the bottom of the chart indicating weekly volumes. The red and sky-blue color lines represent the 21-period SMA and 50-period SMA respectively.

CDD's prices are trading in a sharp bullish trend for the past 3 months and have witnessed more than 100 percent gain. Currently, prices are sustaining above a downward sloping trend line breakout level; however, facing strong resistance at AUD 0.752, indicating the possibility of a trend reversal. The momentum indicator RSI (14-period) is trading in an overbought zone (~89 levels), further indicating correction from the current level. However, the prices are getting support from the trend-following indicators 21-period SMA and 50-period SMA. On the downside, the major support level for the stock is AU$0.5700.

Stock Recommendation: The stock has a 52-week low and high of $0.200 and $0.725, respectively and is currently hovering around 52-week high level. The stock reported triple digit return of ~155.17% in the past six months and ~196% in the past one year. 

We have applied EV/EBITDA multiple Based relative valuation (on an illustrative basis) and there are expectations that the stock price might witness a fall of low double-digit (in % terms). We have applied a slight discount to EV/EBITDA Multiple (NTM) (Peer median) considering decreased liquidity.

Considering the technical analysis, recent returns, and current trading levels, it is prudent to book profit in CDD. Hence, we give a ‘Sell’ recommendation at $0.740 per share, up by 5.714% on 15^th April 2021.

CDD Daily Technical Chart (Source: Refinitiv (Thomson Reuters)) 

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.