Spheria Emerging Companies Limited

SEC Details

1HFY21 Financial Performance: Spheria Emerging Companies Limited (ASX: SEC) is an investment company that manages portfolios of small and micro companies in Australia and New Zealand. The market capitalisation of the company as on 15 June 2021 stood at ~$135.33 million. As per a recent financial update, the company has recorded a net profit after tax of $25.6 million in H1FY21. During the period, the company’s performance grew by 35.3% and over 15% hike compared to the benchmark.  The Total shareholder return (TSR) stood at 50.8% during the period. It declared an interim dividend of 3.5 cents per share.

Rise in NTA Levels (Source: Company Reports)

Outlook: The company is committed to pay 6.0c per share of annual dividends in FY2021 and FY2022, fully franked. It is also exploring global best practice initiatives to conduct its business. In addition, it took positions in quality business that have the potential to generate cash. SEC remains well-positioned to benefit from the reduction of travel restrictions. 

Key Risks: Due to COVID-19, the company is exposed to a highly volatile market, which could impact its operations. Additionally, the CTD segment has moved to a modest loss-making position due to the impact of the pandemic.

Stock Recommendation: As per a recent update, the company has recorded its performance for April month at 3.4%, whereas S&P/ASX Small Ordinaries Accumulation Index gave a return of 5% during the same period. The company’s estimated Net Tangible Assets (NTA) per share stood at $2.509, as of 10 June 2021. The stock of SEC is trading close to its 52-weeks' high levels of $2.300. The stock of SEC gave a positive return of ~68.26% in the past one year and a positive return of ~17.52% in the past six months. On a technical analysis front, the stock of SEC has a support level of ~$2.121 and a resistance level of ~$2.302. Considering the current trading levels, the recent rally in the stock price, the COVID-19 disruption in operations and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $2.280, up by 1.333% (as on 15 June 2021, 11:40 PM (GMT+10), Sydney, Eastern Australia).

SEC Daily Technical Chart, Data Source: REFINITIV 

Acumentis Group Limited 

ACU Details

Business Update: Acumentis Group Limited (ASX: ACU) is an advisory firm that serves commercial property valuation, property advisory, rural and agribusiness to private owner and investor, professional/SME, corporate, government. The market capitalisation of the company stood at $17.49 million as on 15 June 2021. As per a recent announcement, the company has acquired the remaining 57.8% of its Western Australian associate Acumentis (WA) Holdings Pty Ltd to expand in South Australia and the Northern Territory. The acquisition is expected to be effective from 1 July 2021, and values ACU WA at 4.5x annual PBT along with net cash balances as of 30 June 2021.

Q3FY21 Financial Performance: During the YTD period to March quarter, the company has recorded a significant increase in its revenue by 21% to $33.7 million, compared to $26.5 million during the previous corresponding nine-month periods, whereas the march quarter revenue stood at $10.5 million. ACU has spent $107K cash to acquire Saunders & Pitt, Tasmania. The company has generated cash from its operations at $2.2 million during the YTD period. The cash position of the company stood at $2.7 million as of 31 March 2021.   

Q3FY21 Cashflow from Operating Activities (Source: Company Reports)

Outlook: The company is expanding its footprint to gain on customer base. The company anticipates a solid final quarter from Government revenues in FY21. The successful acquisition also leads to unifying the services, which might enhance the client experience and engagement. The company is also anticipating increased revenue in FY22, aided by the national residential property market growth.

Key Risks: The company is exposed to financial frauds like money laundering risk, due diligence risk, which could impact its overall performance and brand name.

Stock Recommendations: The company estimates a potential growth from its acquisition of WA associate that could add $7-$8 million annual revenues to Acumentis consolidated results. The stock of ACU is trading below its average 52-weeks' levels of $0.078-$0.160. The stock of ACU gave a positive return of ~14.58% in the past one year and a negative return of ~18.51% in the past six months. On a TTM basis, the stock of ACU is trading at an EV/EBITDA multiple of 3.9x, lower than the industry average (Real Estate Operations) of 6.1x. Considering the current trading levels and valuation on a TTM basis, the strategic acquisitions, decent cash balance, impressive YTD performance and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.110, as on 15 June 2021.

ACU 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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