Stocks’ Details

Austal Limited

Future Growth to be Supported by Decent Level of Order Book: Austal Limited (ASX: ASB) is engaged in the designing, manufacturing, and support of high-performance vessels for commercial and defence customers worldwide. The market capitalisation of the company stood at ~$1.14 Bn as on 14^th September 2020.

Purchase of Additional Assets: Recently, the company has wrapped up the purchase of additional waterside land, buildings, as well as an existing dry dock along the Mobile River. The company has paid a consideration of US$10 million, which was financed from cash holdings. The acquisition supports its expansion in its new construction and service strategy by securing launch and deep-water berthing capability, which in turn will support future new construction efforts.

Reasonable Growth in Topline: For FY20, the company reported revenue amounting to $2,086.0 million, reflecting YoY growth of 13%. In addition, the company also witnessed revenue growth in all segments, which was mainly supported by the expansion of commercial shipbuilding, and favourable FX translation. NPAT for the period amounted to $89.0 million, a rise of 45% year over year. The cash at bank of the company witnessed an increase of 44% to $396.7 million, with a reduction in gross debt to $165.2 million. The company ended the year in the net cash position exclusive of the CCPB 9 & 10 debt increasing substantially to $272.4 million. ASB has resolved to pay an unfranked final dividend of 5 cents per share on 22^nd September 2020, which brought the full-year dividend to 8.0 cents per share. During FY20, the company reported operating cash flow of $164.5 million, which was in line with FY19 results.

Key Financials (Source: Company Reports)

Outlook: The company entered FY21 with an order book of $4.3 billion, which is likely to be delivered through FY21 to FY24. However, the company has decided not to pay EBIT guidance for FY21 due to global economic uncertainty.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 1.99x in FY20, reflecting YoY growth of 39.0%. This indicates that the company has improved its position to address its short-term obligations. The stock of ASB is trading slightly below the 52-week low-high average of $2.250-$4.490, respectively. On the technical analysis front, the stock of the company has a support level of ~A$3.134 and a resistance level of ~A$3.606. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as GUD Holdings Ltd (ASX: GUD), Electro Optic Systems Holdings Ltd (ASX: EOS), Quickstep Holdings Ltd (ASX: QHL), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the acquisition of assets, decent growth in financials and decent order book, we give a “Buy” recommendation on the stock at the current market price of $3.260 per share, up by 3.165% on 14^th September 2020.

Monadelphous Group Limited  

Long-Term Demand for Maintenance Services to Grow in Future: Monadelphous Group Limited (ASX: MND) is involved in the provisioning of engineering services within Australia with a market capitalisation of $989.95 Mn as on 14^th September 2020. 

Secured Contracts in Resources Sector: On 14^th September 2020, the company notified the market that it has won construction and maintenance contracts in the resources sector with a combined value of around $120 million under its WAIO Asset Panel Framework Agreement with BHP. This include a contract to provide structural, mechanical, and electrical upgrades at the Newman Hub site in the Pilbara, Western Australia. Work for the contract is likely to commence on an immediate basis and will be finished before the end of 2021. In addition, the company also secured a contract for dewatering of surplus water at Jimblebar mine site in Newman, Western Australia. The Maintenance and Industrial Services division of MND has also been presented a contract to undertake a major dragline shutdown for BHP Mitsubishi Alliance at its Saraji Mine, which would be completed by the end of December 2020.

Decent Growth in Maintenance and Industrial Services Revenue: During FY20, the company recorded revenue amounting to $1.65 billion, which indicates an increase in shutdown and maintenance work in the resources sector in 1H FY20, as well as the commencement of a number of large resource construction projects. In addition, the maintenance and industrial Services division posted annual revenue of $1.05 billion, a rise of 5.1% over pcp. Net profit after tax for the period stood at $36.5 million. The company’s earnings in 2H FY20 were impacted by the disruption caused by COVID-19, and disappointing levels of profitability in the Water Infrastructure business. The company declared a final dividend of 13 cents per share, which took the full-year dividend to 35 cents per share fully franked. Despite challenging economic and operating conditions, the company managed to close the year with a strong balance sheet, which comprised of a cash balance of $208.3 million.

Revenue Profile (Source: Company Reports)

Outlook: MND is positive about the long-term outlook for renewable projects. In addition, the company is expecting long term demand for maintenance services to grow. MND has scheduled to conduct its Annual Shareholders Meeting on 24th November 2020.

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

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

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

Stock Recommendation: Debt to equity of the company stood at 0.24x in FY20 as compared to the industry median of 0.44x. On the technical analysis front, the stock of the company has a support level of ~A$10.307 and a resistance level of ~A$11.369. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a price of the upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Downer EDI Ltd (ASX: DOW), Fletcher Building Ltd (ASX: FBU), Aurizon Holdings Ltd (ASX: AZJ) to name few. Thus, considering the recent winning of contracts, strong balance sheet and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $10.790 per share, up by 3.155% on 14^th September 2020.

Clean TeQ Holdings Limited

Focus on Market Penetration Strategies: Clean TeQ Holdings Limited (ASX: CLQ) is an environmental and mining services group, which provides services to the air purification, resources recovery and water purification markets. The market capitalisation of the company stood at $242.6 million as on 14^th September 2020.

Separation of Water Division: The company recently stated that it is considering a separation of its water division from the remainder of its business. This comprises the Sunrise Project and CLQ’s other mineral exploration activities in New South Wales. The company added that its water division is focused on the designing, procurement, construction, and operation of tailored water purification as well as recycling solutions in the mining, municipal and agri-food sectors. In the span of the past 12 months, the water division has showcased the efficacy of its proprietary technologies at projects in Oman, Australia, and the DRC. As of now, the division is well-established to secure and grow a healthy pipeline of new work. CLQ added that this separation would allow shareholders to manage their own desired exposure more readily to each of the businesses.

CLQ has begun a formal review for consideration of the Board, which would provide a recommendation to shareholders in due course and is likely to finish review in Q4 of CY20. CLQ is also undertaking a cost-benefit analysis of its secondary listing on the Toronto Stock Exchange (TSX).

Decline in Top-Line:  In FY20, Clean TeQ reported a decline of 75% in revenue from ordinary activities to $1,168,000. CLQ reported a rise in losses to $197,676,000 in FY20, due to an impairment expense of $179,221,000. During FY20, the company undertook numerous activities, which are intended to deliver a comprehensive Project Execution Plan that sets up the Project for future delivery on an EPCM (Engineering, Procurement and Construction Management) basis.

Financial Summary (Source: Company Reports)

Key Aspects: The company would continue its commercial development of the applications which are currently in use as well as in the development. In addition, CLQ would also be focused on the market penetration strategies to allow the group to fully exploit the potential of its products in the Metals and Water Divisions.

Stock Recommendation: Current ratio of the company stood at 7.98x in FY20 as compared to the industry median of 1.25x. This reflects that the company is in the position to settle its short-term obligations as compared to the broader industry.  In the month of April 2020, the company received a cash rebate of around $4.4 million from the Australian Tax Office, indicating the refundable tax offset available under the R&D Tax Incentive for FY19. On the technical analysis front, the stock of the company has a support level of ~A$0.108 and a resistance level of ~A$0.388. The stock of CLQ is inclined towards its 52-week high of $0.385. Therefore, considering the capabilities of water division project, decent liquidity position and outlook, we give a “Hold” recommendation on the stock at the current market price of $0.320 per share, down by 1.538% on 14^th September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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