Stocks’ Details

Evolution Mining Limited

Increase in Cash Flows:Evolution Mining Limited (ASX: EVN) is involved in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate in Australia. 

Quarterly Highlights: During the quarter ended 31^st March 2020, the company reported an increase of 10% in mine operating cash flow, on a q-o-q basis, which stood at $257.4 million. Mungai and Cracow reported record cash flows. Gold production for the period declined by 3% QoQ to 165,502 ounces and AISC declined by 7% to $991 per ounce. The company also updated that it has not seen any material impact from COVID-19. It has successfully completed the acquisition of Red Lake which will drive significant growth, going forward.


Production and Sales Summary (Source: Company Reports)

Guidance: Gold production for FY20 is expected to be around 725,000 ounces at an AISC at the top end of guidance of $990 per ounce. Net cash flow for the year is expected to be A$90 – 95 million higher, provided that the current spot metal prices be maintained during the June quarter.

Valuation Methodology: P/E Multiple Based Relative Valuation Approach (Illustrative)


P/E Multiple Based Relative Valuation Approach (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company gave positive returns of 62.46% in the last one year. Over a period of one month, the stock has generated positive returns of 26.01%. Currently, the stock is trading close to its 52-week high level of $5.585.We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a price correction of lower double-digit (in percentage terms). For the purpose, we have considered peers like Newcrest Mining Ltd (ASX: NCM), Northern Star Resources Ltd (ASX: NST), Regis Resources Ltd (ASX: RRL), etc. Considering the backdrop of the above factors, we are of the view that most of the positives have been factored in at the current levels and give a “Sell” recommendation on the stock at the current market price of $5.24, down 0.758% on 29^th April 2020.

The A2 Milk Company Limited

Strong Revenue Growth in Q3FY20:The A2 Milk Company Limited (ASX: A2M) is a premium branded dairy nutritional company focused on products containing the A2 beta-casein protein type. In a recent update, the company stated that David Hearn, Chairman at A2M, now holds 1,305,000 ordinary shares in the company after the exercise of Options.

Trading Update: In company updated that it has continued to report strong revenue growth across all key regions, particularly for infant nutrition products sold in China and Australia. Revenue for the three months to 31 March 2020, stood above the expectations, reflecting the impact of changes in consumer purchase behaviour arising from COVID-19. 

During the first half ended 31^st December 2019, the company generated revenue amounting to NZ$806.7 million, up 31.6% on pcp. NPAT increased by 21.1% and stood at NZ$184.9 million.


1HFY20 Results (Source: Company Reports)

Outlook: There remains significant uncertainty around the potential impact of COVID-19 on supply chains and consumer demand in A2M’s core markets and the resulting financial impact on performance for the remainder of FY20. Notwithstanding this uncertainty, revenue for FY20 is anticipated in the range of NZ$1,700 million - NZ$1,750 million.

Valuation Methodology: P/E Multiple Based Relative Valuation Approach (Illustrative)


P/E Multiple Based Relative Valuation Approach (Source: Thomson Reuters), *1 NZD = ~0.93 AUD

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

Stock Recommendation: The stock of the company gave positive returns of 25.53% in the last three months. Over a period of 6 months, the stock has generated positive returns of 57.62%. Currently, the stock is trading close to its 52-week high level of $19.230. For FY20, the company expects ongoing revenue growth across key regions, supported by increased levels of marketing investment in China and the USA and development of the organisational capability to support the execution of strategy. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a price correction of lower double-digit (in percentage terms). For the purpose, we have considered peers like Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), etc. Considering the above factors, we suggest investors to book profit at current levels and give a “Sell” rating on the stock at the current market price of $18.60, down 1.743% on 29^th April 2020.

XTEK Limited

Results Depicting Mixed Scenario:XTEK Limited (ASX: XTE) provides high-quality products to deliver tailored solutions to the government, law enforcement, military, space and commercial sectors.

Highlights for the Quarter Ended 31^st March 2020: During the quarter, the company received the first commercial order for its XTclave™ plates from an Australian Law Enforcement Agency, following the opening of the XTclave™ Manufacturing Centre in Adelaide. The Small Unmanned Aerial Systems (SUAS) business continued to perform strongly, with additional order for spare parts worth ~$3.2m received from the Australian Defence Force (ADF). In the defence sector, the company continues to experience strong demand and supply, with operations experiencing minimal disruptions due to COVID-19.

During the first half ended 31^st December 2019, revenue increase by 91% and stood at $16.04 million. Loss for the period increased by 29% and came in at $2.29 million, primarily due to heavy investment in R&D.


Results Summary (Source: Company Reports)

Outlook: The company remains well-positioned to serve the growing demand for its proprietary XTclave™ manufactured products, with the new manufacturing centre expected to generate up to $20 million revenue. The company will soon commence the export of XTclave™ manufactured products to the US. XTEK Limited is in a strong position to tap additional SUAS support revenue and has not experienced any significant disruptions to date due to the global COVID-19 crisis.

Stock Recommendation: The stock of the company corrected by 16.42% in the last three months. Over a period of 1 month, the stock has generated positive returns of 36.59%. Currently, the stock is trading near the average of its 52-week trading range of $0.385 - $0.965. At the CMP of $0.59, the stock is trading at a high P/E multiple of 112x. In H1FY20, the company landed in a negative EBITDA and net margin position, after reporting positive margins of 7.4% and 6.6%, respectively, in 2HFY19. Considering the mixed scenario in light of the business performance and margins, along with current trading levels, we give a “Sell” rating on the stock at the current market price of $0.590, up 5.357% on 29^th April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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