Stocks’ Details

Vortiv Limited 

Decent Growth in Revenue: Vortiv Limited (ASX: VOR) provides cybersecurity and cloud-based services with a market capitalisation of ~$37.65 Mn as on 27^th August 2020. The company operates a profitable business, with rising operating cash flows, and possesses a strong demand outlook, generated by rising expenditure to address escalating global cyber security concerns. During FY20, the company reported record revenue amounting to $11.5 million as compared to $5.8 million in FY19. During FY20, VOR’s businesses, Cloudten and Decipher Works managed to see revenue growth from its key customers mainly via strong repeat business, recurring revenue stream as well as cross-selling from the loyal customer base. The company reported a profit after tax at $2.3 million from continuing operations. EBITDA margins expanded to 14% in FY20. Profit and EBITDA were positively impacted by revenue growth and economies of scale in corporate and other overhead costs.

Revenue Growth (Source: Company Reports)

What to Expect: For FY21, the company expects growth in top-line and bottom-line due to anticipated demand for cyber security in the upcoming few years. The company also anticipates opportunities for accretive acquisitions. 

Key Risks: The company is mainly exposed to cybersecurity risk as it generates revenue mainly from cybersecurity services. In addition, the business is also sensitive to credit risk, liquidity risk and interest rate risk. 

Stock Recommendation: As at June 30, 2020, the cash on hand stood at $2.4 million. On TTM basis, the stock of VOR is trading at a price to cash flow multiple of 22.6x, which is higher than the industry average (Technology) of 5.4x, and thus, seems overvalued.  The stock of VOR has moved up by 100.00% and 125.00% in the past three and six months, respectively. As a result, the stock is inclined towards its 52-week high of $0.340. On the technical analysis front, the stock of the company has a support level of ~A$0.218 and a resistance level at ~A$0.30. Therefore, considering the company’s current trading levels and the recent increase in share price, we suggest investors to book profit and give a “sell” recommendation on the stock at the current market price of $0.270 per share on 27th August 2020.

Cue Energy Resources Limited 

Low Revenue in June Quarter: Cue Energy Resources Limited (ASX: CUE) is involved in the exploration and production of oil and gas. The market capitalisation of the company stood at ~$101.23 Mn as on 27^th August 2020. Recently, the company released its operational and financial performance for the quarter ended 30^th June 2020, wherein it reported production revenue of $5.1 million from the sale of 29,322 bbls oil at an average price of $36.01/bbl and 360 mmcf gas sales at an average price of $11.14 per thousand cubic feet. The revenue in June 2020 quarter was low as compared to the March quarter due to lower Maari production, oil price and the timing of Maari oil liftings. In addition, the company experienced a fall of 46% in production expenditure to $1.34 million, owing to enhanced focus on cost reductions at Maari and Sampang.

Key Financials (Source: Company Reports)

CUE Generated Positive Cashflow: For FY20, the company reported revenue from ordinary activities amounting to $23.9 million and EBITDA of $9.3 million. Profit after tax for the period stood at $1.3 million. The net cashflow from operations stood at $7.4 million. CUE experienced a rise of 22% in cash balance to $31.9 million, which was supported by positive cashflow from oil and gas production. 

Cue Received Exploration Approval: On 17^th July 2020, the company notified the market that National Offshore Petroleum Safety and Environment Management Authority has approved Ironbark-1 exploration well in exploration permit WA-359-P. The company has scheduled to commence Ironbark-1 drilling activities in October 2020. The company is well-financed for its expected participating interest costs of the well via funding from farm-in agreements with partners BP, Beach Energy and New Zealand Oil & Gas and around US$8 million of cash reserves which have been escrowed. 

Growth Activities for FY21: The company is planning to drill Ironbark-1 exploration well in Q2 FY21, and it is expecting Paus Biru development planning and FID in 2H FY21.

Key Risks: The company is exposed to key financial risks, such as interest rate and currency risk. In addition, the business is also exposed to legislative and regulatory risk, political, community and other stakeholders, climate change risk and Joint venture risk.

Stock Recommendation: The company closed the June 2020 quarter with the cash balance of $31.9 million, reflecting a fall of 5% over the prior quarter. The stock of CUE is trading at a price to book value multiple of 2.3x as compared to the industry median (Energy) of 1.2x on TTM basis. On the technical analysis front, the stock of the company has a support level of ~A$0.125 and a resistance level at ~A$0.155. In addition, the stock has moved up by 45% and 38.10% in the past three and six months, respectively. The stock is inclined towards its 52-week high of $0.170. We are of the view that most of the positives are factored in at the current juncture. Hence, considering the current trading levels and upside movement in the stock, we suggest investors to book profit and give a “sell” recommendation on the stock at the current market price of $0.150 per share up by 3.448% on 27th August 2020.

8common Limited 

Singing of New Contracts: 8common Limited (ASX: 8CO) is involved in the development and distribution of tow established software solutions. The market capitalisation of the company stood at $17.19 Mn as on 27^th August 2020.  Recently, the company notified the market that it has inked a 3-year agreement with EML Payments Limited to create a CardHero branded reloadable card program. The agreement with EML allows the rollout of the company’s CardHero solution through two products: CardHero and CardHero+. On 26^th August 2020, 8CO advised the market that a further five agencies(Safe Work Australia, Fair Work Ombudsman, Australian Skills Quality Authority, Australian Public Service Commission and Australian Building and Construction Commission) covered under the Service Delivery Office(SDO) of the Department of Finance shared services hub have inked contracts for Expense8. Total Contract Values (TCV) throughout the five new agencies stood at $545k.

For the quarter ended 30^th June 2020 (Q4 FY20), the company reported total revenue amounting to $923k, reflecting a fall of 11% on a pcp due to lower transaction volumes as a result of  COVID-19 travel restrictions and work from home mandates.

Revenue (Source: Company Reports)

Outlook: The company is well-placed to tap opportunities arising from changes in the fund distribution and payments landscape. The company added that the new growth developments underpin the significant growth opportunities which reside within its current client base.

Key Risks: As of now, the key risks with the business include credit risk, liquidity risk, and market risk. Credit risk arises from the default by counterparties on their contractual obligations, while liquidity risk is influenced by the failure of the company to pay its short-term obligations. 

Stock Recommendation: During Q4FY20, the company reported a positive cashflow of $46k. 8CO managed to close the quarter with a healthy balance sheet comprising a net cash position of over $1.8 million. Gross margin of the company stood at 88.9% in 1H FY20 as compared to the industry median of 86.9%. On the technical analysis front, the stock of the company has a support level of ~A$0.084 and a resistance level at ~A$0.1250. On TTM basis, the stock of 8CO is trading at a price to cash flow multiple of 65.9x, which is higher than the industry average (Technology) of 5.4x, and thus seems overvalued. The stock of 8CO has moved up by 56.67% and 38.24% in the span of one and three months, respectively. As a result, the stock is trading towards its 52-week high levels of $0.155. Thus, in light of the current trading levels and the upside movement in stock during past months, we suggest investors to book profit and give a ”sell” recommendation on the stock at the current market price of $0.120 per share, up by 27.66% on 27^th August 2020. The rise in share price can primarily be attributed to the agreement with EML Payments Ltd and other contract wins.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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