Stocks’ Details

Gage Roads Brewing Co Limited

Operation Remains Unaffected During FY20: Gage Roads Brewing Co Limited (ASX: GRB) is engaged in the brewing of craft beer, lager beer, cider, and other beverages. The market capitalisation of the company stood at $63.46 Mn as on 4 September 2020. Recently, the company announced that it has acquired 27.1 million shares through an on-market trade at 5 cents per share. During FY20, the operations of the company were relatively unaffected. The company maintained full production and full supply, which is allowing the company to match the volatile and unpredictable national demand presented during the latter part of the year. The company reported revenue amounting to $36.8 million, reflecting a fall of 7% year over year. The gross profit margin for the period maintained at 66%.

Key Financials (Source: Company Reports)

Outlook: Gage Roads Brewing Co Limited would continue to brew, sell, and market beer, cider and other beverages and will continue to expand its distribution. The company continues to invest in its packaging lines, growing its sales capabilities, and broadening its brand portfolio along with implementing its key strategies to provide enduring competitive advantages and secure the long-term success of its business.

Key Risks: The business activities of the company are exposed to a variety of financial risks, such as market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk.

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

EV/Sales Multiple 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 has deliberately and decisively made investments in sales and marketing ahead of the sales curve in FY19 and FY20. In addition, the company anticipates FY21 to deliver strong returns. The stock of GRB has corrected -15.00% and -25.00% in the past three and six months, respectively. As a result, the stock is trading towards its 52-week low level of $0.035. On the technical analysis front, the stock of the company has a support level of ~A$0.043 and a resistance level of ~A$0.067. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a price with an upside of low double-digit (in percentage terms). Therefore, considering strong operation during FY20, full production and supply initiatives, investment in sales and marketing, and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.050 per share, down by 1.961% on 4^th September 2020.

Cirralto Limited 

A Quick Look at FY20 Results: Cirralto Limited (ASX: CRO) provides business payments products and solutions. The market capitalisation of the company stood at ~$68 Mn as on 4^th September 2020. For the year ended 30^th June 2020, the company reported revenues amounting to ~$462,128, reflecting a fall of 31% on pcp, due to the direct impact of the COVID-19 pandemic. The company’s revenue witnessed a fall of 48% in the month of April 2020 due to cancellation and suspension of projects. The statutory net loss after tax for the period amounted to $3,560,724 as compared to a loss of $6,037,037 in FY19. In addition, the company raised $2.4 million (net of costs) through borrowings and convertible notes. These funds allowed the completion of development, certification and launch of its business payment services products.

Financial Summary (Source: Company Reports).

Key Risks: As of now, the major risk with business is the impact of COVID-19, which might affect the financial performance in the future. 

Stock Recommendation: The company restructured its balance by eliminating $1.4 million in debt. As a result, the company has no outstanding debt.  The stock of CRO has moved up by 258.33% and 975% in the past one and three months, respectively. Resultantly, the stock is inclined towards its 52-week high level of $0.051. CRO has an EV/Sales multiple of 81.0x against the industry median (Software & IT Services) of 6.1x on TTM basis. In addition, the stock is trading at a price to book value multiple of 36.2x as compared to the industry median (Technology) of 4.2x on TTM basis. On the technical analysis front, the stock of the company has a support level of ~A$0.034 and a resistance level of ~A$0.051. Therefore, considering the recent upside movement in the stock, valuation on TTM basis and current trading levels, we give an “Expensive” rating on the stock at the current market price of $0.039 per share, down by 9.302% on 4^th September 2020.

Bounty Oil & Gas NL 

Drilling Completed in June 2020 Quarter: Bounty Oil & Gas NL (ASX: BUY) is engaged in the exploration of oil and gas. The market capitalisation of the company stood at $21.93 Mn as on 4^th September 2020. Recently, the company stated that the National Offshore Petroleum Titles Administrator (NOPTA) has specified on its website that the application made by the Joint Venture Participants BUY and BPH for a suspension, variation and extension to the permit terms for PEP11 is in the final phase of the decision process and is currently with the Joint Authority for decision. The company noted that BPH Energy Ltd announced the geochemical support for the planned exploration well within PEP11 (Bounty Oil & Gas NL Holds 15% in the well), in the offshore Sydney Basin. BPH added that the geochemical report has reviewed the hydrocarbon analysis performed on sediment samples obtained within PEP11 during 2010. For the year ended 30^th June 2020, the company reported revenue from oil sales amounting ~to $2.91 million. During the June quarter, the company drilled, cased, and completed Cooroo 7 and Cooroo NW 5 wells. 

Revenue (Source: Company Reports)

Expected Production: The company anticipates commencing oil production from the Alton area, Surat Basin, SE Queensland in late 2020. The company has scheduled to conduct its Annual Shareholders Meeting on 27 November 2020.

Key Risks: The company generates its revenue from sales of oil at the prevailing TAPIS or Dated Brent oil price on the Singapore market in USD. Hence, any change in prices may lead the business to commodity risk. In addition, the business could be impacted by financial risks, such as liquidity risk and credit risk.

Stock Recommendation: As on 30^th June 2020, the cash current assets of the company stood at $1.55 million with zero debt. On the technical analysis front, the stock of the company has a support level of ~A$0.015 and a resistance level of ~A$0.023. The stock of BUY is trading at a price to book value multiple of 2.2x as compared to the industry median of 1.2x on TTM basis, and thus seems overvalued. In addition, the stock of BUY has moved up by 76.92% and 360% in the past three and six months, respectively. As a result, the stock is inclined towards its 52-week high level of $0.023. Therefore, considering the aforesaid facts coupled with the current trading levels and upside movement in the stock in the past months, we give an “Expensive” rating on the stock at the current market price of $0.020 per share, down by 13.043% on 4^th September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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