Should Investors Speculate on these 2 Small-cap Stocks - AIM, GDA

Ai-Media Technologies Limited

AIM Details

Recent Updates: Ai-Media Technologies Limited (ASX: AIM) is an Australian media technology company, which provides live and recorded captioning, transcription, and translation services.

• Recently, the company announced that it has bought back a total of 1,433,290 shares, where the plan includes buyback of up to 2 million shares.
• Further, the company announced that Cheryl Hayman, a Director in the company has acquired 50,000 fully paid ordinary Shares, for a consideration of $28,000.00.

A Quick Look at 1HFY22 Key Results: The company’s half year results were mainly driven by increasing demand for its SaaS products Lexi and Smart Lexi. SaaS and Devices revenue increased to 26% of total revenue in 1HFY22, depicting a rise of 44% YoY.

Financial Highlight (Source: Analysis by Kalkine Group)

Key Risks: AIM is exposed to a more complex regulatory environment; any failure could lead the business to fines, penalties, etc. The company also faces the risk of technological obsolesce, margin pressure, and competition from new players.

Outlook: The company expects revenues for FY22 to be in the range of ~$60-$62 million ($49.2m in FY21). Moreover, it expects gross margin to be in the ambit of 53-54% (42% in FY21) along with the positive EBITDA for FY22.

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: The stock of AIM is trading close to its 52-week low level of $0.530. The stock has been corrected by ~23.02% 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 can trade at a slight discount to its peers, considering the trend of negative net margin, a rise in cash cycle days, macroeconomic uncertainties, etc. For the purpose of valuation, peers such as Straker Translations Ltd (ASX: STG), Nine Entertainment Co Holdings Ltd (ASX: NEC), and Ooh!Media Ltd (ASX: OML) have been considered. Considering the current trading levels, the launch of Lexi and Smart Lexi products, expected upside in valuation, growing revenue and decreasing net losses, decent outlook, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.54, down by ~0.918% as on 28 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

AIM Daily Technical Chart, Data Source: REFINITIV 

Good Drinks Australia Limited

GDA Details

GDA Inks Strategic Alliance: Good Drinks Australia Limited (ASX: GDA) has its business in brewing, packaging, and marketing for beer, cider, and other beverages.

• On 17 March 2022, GDA informed the market that it will ink a partnership deal with the wholly owned subsidiary of C&C Group Plc, called C&C International.
• As per the deal, GDA will become the sole importer and distributor for the Magners Original Irish Cider in Australia. The deal is expected to commence on 1 July 2022 to 28 February 2026, with possibility to continue by a further 3 years.

Spotlight on 1HFY22 Financial Aspects: The company has carried on with its sales momentum into 1HFY22 and has delivered a robust EBITDA earnings result amidst challenging global environment. GDA continues to focus on developing its sales and marketing capabilities, position itself as a top-tier brewer and provide a complimentary spread of brands to its consumers at different price points.

Results Highlight; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of rising inflation, COVID-19 supply chain interruptions, and supplier concentration, which might impact the company’s operating costs.

Outlook: The company expects to manage inflationary pressures via positive sales price and sales mix Owing to higher international freight, GDA expects COGS to increase in 2H FY22, but expects to maintain COGS target of $1/Litre. The company expects to maintain its contract brewing in 2HFY2 and expects to deliver 20m litres of Good Drinks brands by FY25.

Valuation Methodology: P/E 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: The stock of GDA gave a negative return of ~20.44% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $0.700. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the positive gross and net margin maintained, robust increase in revenues, rise se in volumes, etc. For this purpose of valuation, a few peers like Treasury Wine Estates Ltd (ASX: TWE), Lark Distilling Co Ltd (ASX: LRK), United Malt Group Ltd (ASX: UMG) have been considered. Considering the current trading levels, growth in sales volume, higher production volume, upside in valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.72, up by ~2.857% as of 28 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

GDA Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

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