Fluence Corporation Limited

FLC Details

Director’s Change of Interest: Fluence Corporation Limited (ASX: FLC) is engaged in the provision of innovative, cost-effective decentralized water and reuse solutions. The market capitalisation of the company as on 08 July 2021 stood at ~$118.72 million. As per a recent update, the company’s director Paul Donnelly has undergone a change of interest in the company and has acquired 1,000,000 unlisted options.

Receipt of Payment: On 4 June 2021, the company has announced that it has received ~US$20.1 million payment from the Israel Discount Bank. This is with regard to the completion of the third milestone under the company’s contract for the Ivory Coast Water Treatment Project.

Q1FY21 Performance Update: During the quarter, the company has received new orders of US$13.3 million, reflecting an increase of over 11% on the previous quarter. The orders from SPS segment stood at US$7.5 million, an increase of over 36% on Q4FY20, and includes ~US$5 million from China bookings. It delivered revenues of US$18.2 million during the period, driven by growth in SPS and decent sales in China. It ended the period with a cash balance of US$14.9 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company has presence and execute its projects in different geographies. Thus, it is exposed to the risks of foreign currency volatility.

Outlook: The company expects further improvements in operating efficiency in FY21 and anticipates SPS revenues to be in the range of US$35 – US$50 million. The priority of the company is to secure significant contact wins in key markets.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: FLC has successfully commissioned its first MABR installation in the city of Sihanoukville, Cambodia. As per ASX, the stock of FLC is trading below its average 52-weeks’ levels of $0.160-$0.330. The stock of FLC gave a negative return of ~4.99% in the past one year and a negative return of ~19.14% in the past three months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade some premium to its peer median EV/Sales (NTM Trading multiple), considering the impressive financial performance, timely execution of Ivory Coast Project and a stable balance sheet position. For this purpose, we have taken peers such as Scidev Ltd (ASX: SDV), Intega Group Ltd (ASX: ITG), CIMIC Group Ltd (ASX: CIM), to name a few. Considering the expected upside in valuation and current trading levels, decent performance in Q1FY21, decent balance sheet position, receipt of payment for the third milestone on Ivory Coast Project and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.190, as on July 08, 2021.

FLC Daily Technical Chart, Data Source: REFINITIV

Holista Colltech Limited

HCT Details

Business Update: Holista Colltech Limited (ASX: HCT) is a biotechnology company and is engaged in the distribution of natural health supplements. The market capitalisation of the company as on 08 July 2021, stood at ~$15.97 million. As per a recent update, the company has appointed Walter Edward Joseph as a Non-Executive Director and Company Secretary, effective from 28 June 2021.

Legal Dispute Update: On 23 June 2021, the company has updated that it has reached an amicable out-of-court settlement with Eight Mercatus USA, in regard to a legal dispute that occurred between the two companies with respect to disappointing sales performance of Eight Mercatus USA. Both the parties have also mutually decided to terminate the partnership agreement between them.

Q1FY21 Update: During the period, the company reported an improvement in the net operating cash outflow to $17,000 compared to an outflow of $514,000 in the previous quarter. This was on the back of a prudent cost management approach and an improvement in the sales receipts during the period. The ovine collagen sales grew by ~312% on the pcp. It ended the period with a cash position of $2.4 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s products and processes are prone to prudent regulatory purview. Hence, this might have an impact on the top-line and bottom-line of HCT.

Outlook:  The company expects the growth momentum to continue in 2021. It expects the improved performance of iGalen to aid decent result for the company’s Infection Control Solutions business over the coming quarters. HCT will also look to launch its nasal beam and M3® industrial solution going forward.

Stock Recommendation: On 26 May 2021, the company has announced that it been successful in securing $501,250 grant from the Western Australian state government under its Collie Futures Industry Development Fund. As per ASX, the stock of HCT is trading below its average 52-weeks’ levels of $0.048-$0.200. The stock of HCT gave a negative return of ~6.45% in the past one month and a negative return of ~7.93% in the past nine months. On a TTM basis, the stock of HCT is trading at a P/BV multiple of 2.9x, lower than the industry median (Healthcare) of 4.0x. Considering the current trading levels and valuation on TTM basis, improvement in financial performance, increase in ovine collagen sales, optimistic outlook and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.058, as on July 08, 2021.

HCT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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