Stocks’ Details

DroneShield Limited

Record Cash Receipts in Q4 FY20: DroneShield Limited (ASX: DRO) is a Sydney based worldwide leader in drone security technology. The market capitalisation of the company stood at ~$68.22 million as on 13^th January 2021. Recently, the company has released its results for Q4 FY20, wherein, it experienced a record quarterly cash receipts of $2.1 million. These cash receipts consisted of a wide geographic range of customers, including the Five Eyes countries and several others. On 29^th December 2020, the company informed the market about the receipt of a follow-up order of around $400,000 from a major intelligence Government agency of a Five Eyes country for its DroneGun Tactical^TM hand-held counter-UAS products. The company is expecting to fill this order in Q1 FY21. For the half-year ended 30^th June 2020, the company recorded a rise of 45% in revenue continuing activities to $3,593,897, and net loss for the half-year amounted to $1,171,742, showcasing an improvement of 56%.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company would work on the execution of a formal contract for its previously announced $70- $85 million Middle Eastern bid. In addition, the company possesses a near-term high conviction pipeline, which includes numerous additional multi-million-dollar opportunities globally.

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $4,068,832 as compared to $5,485,000 as on 30^th June 2019. The stock of DRO is trading below the average price of its 52-week band, offering a decent opportunity for accumulation. The current ratio of the company stood at 3.69x in 1H FY20 as compared to the industry median of 1.17x. This indicates that the company is in a decent position to settle its short-term obligations. On a technical analysis front, the stock has a support level of ~$0.158 and a resistance level of ~$0.190. Thus, considering the record cash receipts in Q4 FY20, follow-up order from a government agency, current trading level and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.170 per share, down by 2.858% on 13^th January 2021.

ECS Botanics Holdings Ltd

Signing of Binding Term Sheet with Flowerday Holdings Pty: ECS Botanics Holdings Ltd (ASX: ECS) is engaged in cultivating and processing hemp for the wholesale market and its own retail food brand. The market capitalisation of the company stood at ~$33.06 million as on 13^th January 2021. Recently, the company inked a binding Term Sheet with Flowerday Holdings Pty Ltd for the acquisition of Murray Meds Pty Ltd and Flowerday Farms Pty Ltd. The company would pay a consideration of A$1 million and will issue 100 million fully paid ordinary shares at a deemed issue price of $0.05 per share. In addition, the company also inked a binding equipment technology transfer and medicinal cannabis supply Term Sheet with MediPharm Labs Australia Pty Ltd, wherein, MediPharm Labs Australia would purchase cannabis inputs from ECS to support the production of formulated finished products for future distribution. This supply agreement is scheduled to commence on 1 November 2021 for a period of three (3) years.

During the quarter ended 30^th September 2020, the company recorded total sales revenue amounting to $146,000, which was primarily derived from the sale of Hemp Seed Oil for distribution in Woolworths stores. In addition, the company reported cash receipts from customers of $286,000 because of the sale of soups in the previous quarter. For the year ended 30^th June 2020, the company recorded revenue amounting to $919,128 as compared to $26,552 in FY19. Loss for the year amounted to $4,569,470 against the loss of $846,764 in FY19.

Financial Summary (Source: Company Reports)

Completion of Placement: In the month of December 2020, the company raised $4,000,000 via the placement of ~88.8 million shares at an issue price of 4.5c per share to a sophisticated and professional investor. The capital raising is likely to cement the company’s balance sheet and gives it a clear path to production at its medicinal cannabis facility in Tasmania.

Outlook: Looking forward, the company is planning to focus on the development of an outdoor medical cannabis project.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $2.57 million. The stock of ECS has moved up by 113.04% and 188.23% in the last three and six months, respectively. As a result, the stock is trading above its 52-weeks’ low-high average of $0.045. In addition, ECS has an EV/Sales multiple of 18.9x against the industry median of 16.6x on TTM basis. Thus, it seems that the stock is overvalued at the current trading level. On a technical analysis front, the stock has a support level of ~$0.038 and a resistance level of ~$0.055. Therefore, considering the price movement in the past few months, current trading level and valuation, 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 $0.047 per share, down by 4.082% on 13^th January 2021. We further suggest investors to wait for a better entry level.

Victory Mines Limited

Commencement of RC Drilling Program: Victory Mines Limited (ASX: VIC) is an exploration company, involved in the new project acquisition and exploration activities. The market capitalisation of the company stood at $13.24 million as on 13^th January 2021. Recently, the company announced that it has commenced RC drilling programme of 6,000m at its Coogee Gold Project, which is likely to be finished over a period of around 6 weeks by leading RC drilling contractor Strike Drilling Pty Ltd. In the drilling program, the company has planned 40 drill holes, and the majority of the holes range in depth from 100 to 250m.

During September 2020 quarter, the company finished the acquisition of Coogee Gold Project Joint Venture Interest in Western Australia and Carmichael Prospecting Company Pty Ltd. During the quarter, the company’s net cash outflow from the operating activities stood at $121k and $109k from investing activities. For the year ended 30^th June 2020, the company recorded loss amounting to $471,211 as compared to $13,090,902 in FY19.

Cash Flow from Operating Activities (Source: Company Reports)

Capital Raising: During the quarter, the company raised $450,000 via a placement to sophisticated investors of 450 million fully paid shares at $0.001 and 450 million attaching unlisted options exercisable at $0.003 per share on or before 31 December 2024. In addition, the company also raised $100,000 through a placement to Serena’s nominees of 100 million fully paid shares at $0.001 and 100 million attaching unlisted options exercisable at $0.003 per share on or before 31 December 2024. 

Stock Recommendation: The company closed the September 2020 quarter with cash and cash equivalents of $1.12 million. The 52-week low-high range for the stock stands at $0.001-$0.005. In addition, the stock is trading at a price to book value multiple of 12.4x as compared to the industry median (Basic Materials) of 3.0x on TTM basis. Also, the company has recorded negative ROE and ROIC in the past few years. On the technical analysis front, the stock of the company has a support level of ~A$0.002 and a resistance level of ~A$0.004. Therefore, considering the low market capitalisation and loss-making business, we advise investors to avoid the stock at the current market price of $0.003 per share on 13^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.