Stocks’ Details

Viva Leisure Limited

Robust Growth in Members: Viva Leisure Limited (ASX: VVA) is engaged in the operation of health clubs with a market capitalisation of ~$230.98 Mn as on 24^th November 2020. Recently, the company notified the market that it has reached an agreement with Commonwealth Bank of Australia for an increase in the existing $14.55 million, 5-year Senior Secured debt facility to $35.35 million. As per the terms of the agreement, the market rate loan facility, used for Acquisitions has increased from $10 million to $25 million. These limits have been increased to support the growing Viva Leisure business and future opportunities. The company also achieved a significant membership milestone of 100,000 members for the first time in its history during the month of October 2020. For the year ended 30^th June 2020, the company reported revenue amounting to $40.9 million as compared to $31.2 million in FY19. Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) for the year amounted to $6.07 million.

Members Growth (Source: Company Reports)

Outlook: During FY21, the company is likely to expand its business in a controlled manner to attain its strategic objectives.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company ended FY20 with cash and cash equivalents of $30.1 million, reflecting a rise of $14.4 million from FY19. In the past six months, the stock of VVA has moved up by 36.05%. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price with correction of low double-digit (in percentage terms). In addition, we have considered 14-day RSI and default values have been used. After careful consideration, it was observed that the stock is currently in the overbought zone. Hence, we expect a marginal fall in the stock price in the coming times. On a technical analysis front, the stock of VVA has a support level of ~$2.804 and a resistance level of ~$3.309. Thus, considering the current trading level, RSI levels and valuation, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $3.240 per share, down by 0.309% on 24^th November 2020.

Galan Lithium Limited

Decent Growth in Resources at HMV: Galan Lithium Limited (ASX: GLN) is engaged in the exploration and development of lithium projects with a market capitalisation of $66.52 Mn as on 24^th November 2020.  On 17^th November 2020, the company notified the market with a substantial increase of 65% in resource with an additional 895 thousand tonnes (Kt) of contained lithium carbonate equivalent (LCE) @ 946mg/l Li (no cut off) at Hombre Muerto West lithium brine project (HMV). The increase in resources was the outcome of the strategic acquisition of Del Condor concession and SRK Consulting (Australasia) review of average porosity data.  During Q1 FY21, the company recorded net cash outflow from operating activities of $200k and $727k from investing activities.

Cash Flows (Source: Company Reports)

Outlook: GLN stated that the PEA and scoping studies for HMW are on track with process design and pond layout being finalised. In addition, the company expects to report the final results for the study in Q4 2020.

Stock Recommendation: The company ended September 2020 quarter with cash and cash equivalents of $1.01 million. The stock of GLN has moved up by 96.29% and 76.66% in the last one and three months, respectively, and as a result, the stock is inclined towards its 52-week high level of $0.330. We have considered 14-day RSI and default values have been used. After careful consideration, it was observed that the stock is currently in overbought zone. On a technical analysis front, the stock of GLN has a support level of ~$0.21 and a resistance level of ~$0.33. Thus, considering the current trading level, steep price movement in the few months and RSI levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.270 per share, down by 15.625% on 24^th November 2020.

Core Lithium Ltd

Decent Assay Results from Gold Exploration: Core Lithium Ltd (ASX: CXO) is involved in the exploration of lithium, copper and uranium with a market capitalisation of ~$51.70 Mn as on 24^th November 2020. Recently, the company notified the market that it has received significant assay results from ongoing gold exploration at Bynoe Gold Project in the Northern Territory. The company achieved 20 g/t Au in rock chips at newly defined Kellermeister and Rosella Prospects. During September 2020 quarter, the company maintained its focus on several initiatives targeted at further enhancing the value and potential of its wholly-owned Finniss Lithium Project. During the same quarter, the company recorded net cash outflow from operating activities of $413k and outflow of $2.35 million from investing activities.

Cash Flows (Source: Company Reports)

Outlook: Going forward, the company would be focused on the advancement of the Finniss Lithium Project and ongoing exploration of assets.  The company has scheduled to conduct its 2020 Annual General Meeting on 24^th November 2020.

Stock Recommendation:  The cash and cash equivalents of the company stood at $8.7 million as on 30^th September 2020. The stock of CXO has moved up by 38.46% in the last nine months and is trading closer to its 52-week high of $0.060.  We have considered 14-day RSI and default values have been used. After careful consideration, it was observed that the stock is currently in overbought zone. Hence, we expect a marginal fall in the stock price in the coming times. On a technical analysis front, the stock of CXO has a support level of ~$0.042 and a resistance level of ~$0.058. Thus, considering the current trading level and RSI levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.055 per share, up by 5.769% on 24^th November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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