Stocks’ Details

Mastermyne Group Limited

Execution of Binding Term Sheet: Mastermyne Group Limited (ASX: MYE) provides underground roadway development, installation of conveyors and provision of consumables to the Australian coal mining industry. The market capitalisation of the company stood at $77.99 million as on 19^th January 2021. Recently, the company announced that it has executed a binding term sheet with Dysart Coal Mine Management Pty Ltd (“DCMM) with respect to the Dysart East Underground Coal Mine. The company added that DCMM would prepare a final bankable feasibility study, which would be focusing on developing a mining operation utilising continuous miners, shuttle cars and mobile bolters.

Decent Growth in Topline and Bottom Line: During the year ended 30^th June 2020, the company was focused on safe operations with lengthy injury-free periods at multiple sites. The company witnessed a growth of 23% and 37% in revenue and NPAT to $292.7 million $11.7 million, respectively. The revenue growth was mainly aided by contract extensions at Anglo American Moranbah North Mine, Glencore Integra Mine, BMA Broadmeadow Mine, and a new contract for the Aquila Underground Development project. In addition, the company won several new projects with the renewal of existing. As a result of decent growth in financials, the company declared a final dividend of 4.0 cents per share, which brought the full-year dividend to 6 cents per share.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is optimistic about the outlook for metallurgical coal in spite of the impacts of global COVID-19 restrictions. Over the medium to long -term, the company expects strong demand for Australian seaborne metallurgical coal. As of now, the company currently possesses an order book of $656 million, which is to be completed in the years to come.

Stock Recommendation: The company closed FY20 with a net cash position of $21.4 million after return to shareholders and on-going investment. In addition, the company seems to be well-placed to continue its investment in growth and diversification. The stock of MYE has provided positive returns of 8.82% and 10.44% in the last three and six months, respectively. In addition, the stock is trading slightly below the 52-week low and high average of $0.775, offering decent opportunity for accumulation. Also, it is trading at a price to book value multiple of 1.1x against the industry average (Coal) of 9.1x on TTM basis. On a technical analysis front, the stock has a support level of ~$0.645 and a resistance level of ~$0.786. Thus, considering the decent growth in top-line and bottom-line, attractive order book, decent outlook, net cash position, current trading levels along with key associated risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.720 per share, down by 2.041% on 19^th January 2021.

Vimy Resources Limited

Received Approval for Mulga Rock Project: Vimy Resources Limited (ASX: VMY) is involved in the exploration and evaluation on the Alligator River Project in the Northern Territory and the Mulga Rock Project in West Australia. The market capitalisation of the company stood at $66.96 million as on 19^th January 2021. Recently, the company announced that it has been approved to join the US-based OTCQB Venture Market under the ticker symbol ‘VMRSF’, which commenced on 13^th January 2021. During the September 2020 quarter, the company received approval for all seven environmental management plans (CEMP) for the Mulga Rock Project. The company recorded net cash outflow from operating activities of $1.6 million and $28k from investing activities. For the year ended 30^th June 2020, the company recorded loss amounting to $6,296,514 as compared to $6,864,312.

Cash Flow Details (Source: Company Reports)

Outlook: The company’s strategy revolves around to develop its assets and to ultimately become a uranium producer. In addition, the company is also focused on the development of the Mulga Rock Project by negotiation of offtake contracts with electrical power utilities, funding facilities.

Stock Recommendation: As on 30^th September 2020, the cash balance of the company stood at $5.5 million. In the last three and six months, the stock of VMY has surged 158.82% and 151.42%, respectively. Currently, the stock is inclined towards its 52-week high level of $0.094. In addition, the stock is trading at a price to book value multiple of 8.1x against the industry median (Uranium) of 3.7x 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 ~$0.03 and a resistance level of ~$0.094. Therefore, considering the aforesaid facts, steep price movement in the past few months, and valuation on TTM basis, 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 $0.084 per share, down by 2.326% on 19^th January 2021. We further suggest investors to wait for a better entry-level.

ResApp Health Limited

Appointment of Vice President: ResApp Health Limited (ASX: RAP) is involved in the development of smartphone applications for the diagnosis and management of the respiratory disease. The market capitalisation of the company stood at $60.64 million as on 19^th January 2021. As per the recent quarterly rebalance of S&P/ASX Indices, the company has been removed from S&P/ASX All Technology Index, which became effective on 21^st December 2020. On 11^th January 2021, the company notified the market that it has appointed Mike Connell on the position of VP, Commercial. In the month of December 2020, the company rolled out a direct-to-consumer smartphone app “SleepCheck” for the self-assessment of sleep apnoea, which is now validated and available for download on select Android devices.

During the quarter ended 30^th September 2020, the company reached a two-year service agreement with Coviu in order to make ResAppDx (acute respiratory diagnostic test) available to Coviu’s telehealth customers within Australia. As per the terms of the agreement, the company receives a licence fee per test in the range of $5 to $10. During the same quarter, the company reported net cash outflow from operating activities of $1.44 million and also received $1.525 million from the exercise of options.

Cash Flows (Source: Company Reports)

Outlook: RAP would continue to work with Australia’s leading telehealth platforms Phenix and Coviu for exploring opportunities in the foreseeable future. This is likely to improve the uptake of ResAppDx amongst clinicians going forward.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th September 2020, the company had a strong cash balance of $5.8 million.  The stock of RAP has corrected 19.99% and 40.74% in the last three and six months, respectively. As a result, the stock is trading towards its 52-week low level of $0.055, offering decent opportunities for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Integral Diagnostics Ltd (ASX: IDX), Polynovo Ltd (ASX: PNV), and Nanosonics Ltd (ASX: NAN), to name a few. On a technical analysis front, the stock of RAP has a support level of ~$0.066 and a resistance level of ~$0.140. Therefore, considering the recent launch of the Smartphone app, agreement with Coviu, decent cash position, current trading levels and key risk associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.077 per share, down by 3.751% on 19^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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