Etherstack Plc

ESK Details

Trading Update: Etherstack Plc (ASX: ESK) is a provider of critical radio technology solutions to wireless radio equipment manufacturers and network operators. It serves defence, public safety, utility firms, transportation, and resource industries. ESK has an R&D footprint in Sydney, London, Yokohama, and New York. As on 3^rd February 2021, the market capitalisation of the company stood at ~A$84.22 million. The company reported a strong order book starting FY21 on the back of established recurring revenues. The firm has is in the process of compiling and auditing its annual results and expects revenue and EBITDA figures will be comparable to the last year. The company reported an increase of 27% YoY in recurring revenues from support contracts and royalties to US$2.33 million in FY20 versus US$1.84 million in FY2019. The company affirmed 3 consecutive years of positive operating cashflow, positive EBITDA and made US$556 of loan repayments FY20. 

Q4FY20 Quarter Activities & Results: During the quarter, ESK entered a contract with Australian Department of Defence contract for A$4.1 million to supply ESK technology and related services to the Commonwealth of Australia. ESK raised capital of A$5 million before costs via an institutional placement to tap opportunities in government infrastructure, defence and public safety markets, foster development of IP required in these sectors and solidify working capital resources. The company earned cash receipts worth US$1.05 million from customers for Q4FY20 lower than the average for the year. It closed the December quarter with positive cash flows from operations US$470k, $40k of loan repayment, and cash balnace of US$4.18 million. 

Recurring Revenue Highlights, FY14-FY20 (Source: Company Reports) 

Outlook: The management estimates revenue and EBITDA for FY20 to in line with the FY19 figures. The management is optimistic about on-track progress of its plans given its already booked forward deal flow. It expects to outperform FY20 results and witness signature business growth in FY21.

Stock Recommendation: The stock of ESK gave a positive return of ~8.19% in the past one month and a negative return of ~7.04% in the past six months. The stock is currently trading towards its 52-weeks’ low level of ~$0.12. The stock of ESK has a support level of ~$0.535 and a resistance level of ~$0.887. Considering the current trading levels, decent financial performance, established deal book for FY21, new contracts, profitable bottom line, optimistic outlook for FY21, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.660, up by 1.538% on 3^rd February 2021.

ESK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Thomson Resources Limited

TMZ Details

December 2020 Quarter Highlights: Thomson Resources Limited (ASX: TMZ) is involved in the exploration and development of base metal deposits within New South Wales (NSW) and Queensland. It is building a portfolio spanning gold, silver, and tin deposits. As on 3^rd February 2021, the market capitalisation of the company stood at ~$51.97 million. In a recent update on 3^rd February 2021, the company announced Syndicate Minerals Pty Limited sold 8.55 million voting shares for $2.05 million in an on-market sale transaction and ceased to be a substantial shareholder in TMZ. During the quarter, the company undertook a drilling program at Yalgogrin gold, Harry Smith gold, Chillagoe gold projects. It signed binding terms sheet with Silver Mines Limited and acquired 100% Webbs and Conrad Silver projects in the New England Fold belt in NSW. So far TMZ finished due diligence on the Conrad & Silver projects during January 2021. During the quarter, the company raised $6 million capital from institutional and sophisticated investors for funding exploration activities for its existing and new projects in Queensland and NSW. It issued 314.98 million of fully paid ordinary shares and 50.91 million quoted options (TMZO). TMZ used $286k cash flows from operations held cash reserve of $5.4 million ending December 2020 quarter.

Cash Used in Operating Activities, Q2FY21 (Source: Company Reports)

Outlook: TMZ and SVL have exchanged Definitive Contracts post the close of Q2Y21 and advancing to complete the purchase transaction. Post the due diligence completion on 2 new silver projects, TMZ plans to identify potential extensions to the Silver resources and aims to grow the resource inventory.

Stock Recommendation: The stock of TMZ gave a positive return of 125.35% in the past three months and a positive return of 290.24% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $0.255. The stock of TMZ has a support level of ~$0.151 and a resistance level of ~$0.173. Considering the current trading levels, weak fundamentals, negative ROE, low cash reserves and steep price movement in the past months, we give an ‘Avoid’ rating on the stock at the current market price of $0.160, down by 3.031% on 3rd February 2021.

TMZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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