Sunrise Energy Metals Limited

SRL Details

ASX Price Query Response: Sunrise Energy Metals Limited (ASX: SRL) engages in metals recovery and industrial water treatment services that separate, purify, and recycle polluted water for drinking, agricultural, industrial uses. Further, it extracts, purifies base and precious metals in Australia. ASX recently raised a price query in relation to the sudden decline in the company’s stock price. In its response to ASX, SRL has assured that it is not aware of any information, which may explain the recent trading in its securities.

Entered Service Agreement with Clean TeQ Water Limited:  The Company has entered into a service agreement with Clean TeQ Water Limited to provide specific technical research and development services at the Sunrise Battery Materials Project in New South Wales.

Q4FY21 and FY21 Financial Performance:

• The Company reported receipts from the customer of $933k in Q4FY21, taking the total customer receipts for FY21 to $1.56 million.
• The second phase of the drilling campaign at Phoenix has commenced with assay results expected during the September 2021 quarter.
• The cash balance of the Company stood at $54.65 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk: To meet the financial obligation and operational activity, the Company requires sufficient liquidity to mitigate uncertainty.
• Impact on COVID-19 pandemic- Due to COVID-19, there is a decrease in demand, which could impact the company financials.

Outlook:

• The Company is looking forward to update the market on the exploration activities and further developments at the Sunrise Project in the coming quarters.
• The Company is focused on the research and future development of aluminium-scandium alloys for use in advanced automotive applications under the agreement of UACJ Corporation.

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

Source: 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: Recently, the Company has completed its strategic acquisition of the Hylea Project, which comprises with exploration license in New South Wales. The stock of SRL is trading below its average 52-weeks' levels of $1.315-$3.850. The stock of SRL gave a positive return of ~12.21% in the past one year and a negative return of ~23.61% in the past three months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The Company might trade at a slight premium to its peers’ average EV/Sales (NTM trading multiple), considering the economic recovery and rise in demand. For the purpose of valuation, peers such as IGO Ltd (ASX: IGO), Pilbara Minerals Ltd (ASX: PLS), Galaxy Resources Ltd (ASX: GXY) have been considered. Considering the current trading levels, indicative upside in valuation, strong balance sheet, raise of capital from the securities market, expanding footprint, strategic investment and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the market price of $1.480, as on 24 August 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

SRL Daily Technical Chart, Data Source: REFINITIV 

Decmil Group Limited

DCG Details

FY21 Financial Performance Highlights: Decmil Group Limited (ASX: DCG) is involved in the designing, engineering, and construction works for infrastructure, resources, and renewable energy sectors in Australia and New Zealand.

• The company has recorded a decline in its revenue from continuing operations by 36.5% to $303.7 million in FY21, compared to $451.3 million in FY20, impacted by reduced order book at the commencement of the reporting period and COVID-19 related delays.
• Additionally, the company has reported a decline in the loss by 91.8% YoY to $11.45 million in FY21, driven by the strategic initiative to reset its balance sheet and revitalise the business.
• The company has secured new contracts from Chichester Metals Pty Ltd that are expected to be completed in November 2021, valued at $4.2 million.
• The company has recorded a net tangible asset of $40 million on 30 June 2021, compared to $49.2 million on a pcp basis.

Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company witnessed an impact on its operation due to low demand and economic slowdown.
• Regulatory Risk- To commercialise its product, the company requires certain approvals, and any delays could impact its financial operations.

Outlook: The company is focused on core business, project delivery and maintaining strong client relationships. The Government spent on infrastructure post-COVID recovery, a strong mining cycle, and structural growth allows the company to expand.

Stock Recommendation: As per a recent update, the company has estimated FY22 revenue of ~$500 million and increasingly securing high-margin and low-risk contracts with blue-chip customers. The stock of DCG is trading below its average 52-weeks' levels of $0.345-$0.780. The stock of DCG gave a negative return of ~18.60% in the past one month and a negative return of ~31.37% in the past one year. On a TTM basis, the stock of DCG is trading at an EV/Sales multiple of 0.1x, lower than the industry median (Industrial) of 2.4x, thus seems undervalued. Considering the current trading levels and valuation on a TTM basis, decent balance sheet, government stimulus package, projects in the pipeline, optimistic outlook and the key risks associated with the business, we recommend a 'Speculative Buy” rating on the stock at the current market price of $0.360 as on 24 August 2021.

DCG 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 for 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 the 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

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