WhiteHawk Limited

WHK Details

Quarter Highlights (For the Period Ended 30 September 2020): WhiteHawk Limited (ASX: WHK) is an internet-based cybersecurity marketplace where purchasers can take advice on their cybersecurity needs and be matched to vendor products. As on 19 November 2020, the market capitalization of the company stood at ~$52.25 million. The company has been awarded a $1.5 million phase 2 of the current contract with the U.S. Department of Homeland Security CISA to develop, test, and refine the QSMO Cybersecurity Marketplace. It has also been awarded the first sole source U.S. Federal Government CIO Cyber Risk Radar contract for a base year and 4 option years for base price of $580k with option of up to an additional $600k.

Quarterly Cash Flows: During the third quarter ended 30 September 2020, the company collected US$320k relating to sales receipt from customers and reported invoicing of US$948k, nearly double the invoicing of US$502k in 2QFY20. At the end of same period, the company maintained its monthly average cash burn of US$185k and is likely to collect US$861k in receivables from the third quarter invoicing.

Consolidated Statement of Cash Flows (Source: Company Reports)

Stock Recommendation: The company has started market research conversations with 3 major ISP’s and two major MSP’s in addition to its current pipeline of financial and insurance channels. As per ASX, the stock of WHK is trading very close to its 52-weeks’ high level of $0.285 and seems to have reached its market potential. The stock of WHK gave a return of 64.51% in the past three months and a return of 59.37% in the last one month. On a technical basis, the stock of WHK has a support level of ~$0.225 and a resistance level of ~$0.285. Considering the current trading levels, softer market conditions, and key investment risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.255, down by 3.774% on 19 November 2020.

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

Southern Cross Electrical Engineering Ltd       

SXE Details

Strategic Acquisition: Southern Cross Electrical Engineering Ltd (ASX: SXE) is a provider of large scale electrical, instrumentation, communication, and maintenance services for the infrastructure, commercial, and resources sectors across Australia. As on 19 November 2020, the market capitalisation of the company stood at ~$122.78 million. The company has recently announced a 100% acquisition of a specialized electrical services group, Trivantage Holdings Pty Ltd, for an enterprise value of up to $53.5 million on a debt free basis. The acquisition is to be funded from existing cash reserves and operating cash flows post transaction and is expected to be completed in mid-December 2020. The acquisition of Trivantage strategically aligns with the company’s strategy and is likely to deliver diversification and financial benefits, and cross-selling opportunities.

FY20 Financial Highlights: During FY20, the company reported third consecutive year of record revenues of $415.1 million, reflecting an increase of 8% on the pcp. In the same time span, the company witnessed a decline of 15.5% in EBIT to $16.4 million and a fall of 14.1% in NPAT to $10.9 million. The profit was negatively affected due to the disruption caused by the COVID-19 pandemic, lower average margins, and delay of planned Kemerton Lithium Plant scope. However, the company reported a healthy balance sheet with total cash of $55.3 million and no debt.

FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The company is deepening its presence in resources, commercial, and infrastructure sectors and is actively pursuing acquisition opportunities. As per ASX, the stock of SXE is inclined towards its 52-weeks’ high levels of $0.660 and seems to have reached its market potential. The stock of SXE gave a return of 23.80% in the past three months and a return of 13.04% in the last one month. On a technical front, the stock of SXE has a support level of ~$0.451 and a resistance level of ~$0.565. On a TTM basis, the stock of SXE is trading at a P/E multiple of 10.2x, higher than the industry median (Industrials) of 8.6x, and thus seems overvalued. Considering the current trading levels, falling NPAT, higher P/E multiple, and volatility in markets due to the global pandemic, we suggest investors to book profits on the stock and recommend a ‘Sell’ rating at the current market price of $0.520, up by 5.050% on 19 November 2020.

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

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