Emeco Holdings Limited 

EHL Details

Ceasing of Substantial Holder: Emeco Holdings Limited (ASX: EHL) is mainly involved in providing complementary open cut and mining equipment, technical and engineering services, repair, and maintenance services. The company recently announced that on 8^th December 2021, Vinva Investment Management Limited, has ceased to be a substantial holder of the company.

2021 AGM Highlights: On 18 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that the Pit N Portal business, which the company acquired in February 2020, achieved significant growth, especially in its mining services operations. Some of the key highlights of the AGM are as follows:

• FY21 Results Update: Despite the challenges caused by COVID-19 and trade tensions with China which impacted coal prices, the company reported operating EBITDA of $238 million, down only 7% on FY20. Further, the company reported operating NPAT of $57 million, down by 7% on the previous year.
• Capital Management: During FY21, the company announced the capital management policy of 25-40% of operating NPAT.
• Future Focus: The company intends to focus on any investment on accelerating its strategic goals as it positions itself as a leading provider of diversified mining equipment and services to both open cut and underground projects.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The travel resections associated with COVID-19 pandemic could impact the availability of labour, which could disrupt the company’s operations. The company is also exposed to risks related to trade tensions with China which impacted coal prices.

Outlook: The company expects its 1HFY22 operating EBITDA to be in the range of $120 to $125 million. Further, the company expects further growth in hard rock and metals revenues in the East which further diversifies its coal revenues towards 30% of Group revenue.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by ~19.91% and is trading lower than the average 52-week price level band of $0.835 - $1.370. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding COVID-19 pandemic and risks associated with shortage of labor. For the valuation, peers such as Coventry Group Ltd (ASX CYG), Seven Group Holdings Ltd (ASX: SVW), and Stealth Global Holdings Ltd (ASX: SGI), etc., have been considered.  Considering the decent FY21 results, modest outlook, current trading level, indicative upside in valuation, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.915 as on 17 January 2022, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

EHL Daily Technical Chart, Data Source: REFINITIV

Omni Bridgeway Limited

OBL Details

Completion of Investments: Omni Bridgeway Limited (ASX: OBL) is involved in litigation financing and managing legal risks. On 14 December 2021, the company announced the completion of two investments, with an expected income generation of approximately $18 million.

2021 AGM Highlights: On 30 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that in the last two years since the merger of IMF and OBL, OBL team has easily exceeded the two-year growth target of future investment income of €16 million.

• Growing EPV: At the AGM, the management highlighted that in the last six years, the company’s estimated portfolio value (EPV) has grown tenfold from $2.0 billion to $22.2 billion at 30 September 2021.
• FY22 Result Highlights: During FY21, the company achieved material growth in all key metrics and recognised a record income of A$286 million which translated into a 22% EPV conversion rate.
• Robust Balance Sheet: As at 30 September 2021, the company was in a decent financial position with the group’s balance sheet cash and receivables of A$198 million sufficient to support its operational expenditure and corporate initiatives.

EPV Trend (Source: Analysis by Kalkine Group)

Key Risks: The uncertain and challenging landscape created by COVID-19 pandemic continues to pose risk for the company as it could cause closure of courts, which could disrupt the company’s operations. The company is also exposed to the risks related to the fluctuations in the foreign currency exchange rates.

Outlook: The company’s longer-term objective is to increase funds under management to $5 billion, with $1 billion of commitments, in FY25. To refinance its debt, the company has identified a potential lender and is looking to finalise its arrangements early in the calendar year 2022.

Valuation Methodology: Price to Cashflow Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by ~5.3%. The stock has a 52-week high and low price of $2.65 - $4.38. The stock has been valued using price-to-cashflow multiple-based illustrative relative valuation and arrived at a target price with a correction of mid-single digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding COVID-19 pandemic and regulatory risks. For the valuation purpose, peers such as Af Legal Group Ltd (ASX: AFL), ALS Ltd (ASX: ALQ), QANTM Intellectual Property Ltd (ASX: QIP), etc., have been selected. Considering the uncertain and challenging landscape created by COVID-19 pandemic, and indicative downside in valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $3.49, as on 17 January 2022, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

OBL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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 and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.